Amendments to capital gains tax (CGT) scrip for scrip roll-over

Integrity provisions currently apply in respect of the scrip for scrip roll-over measures for shareholders with sufficient interests to potentially influence both the target and acquiring entity in a restructure.  Where the integrity provisions apply, the cost base in the target entity that is acquired is inherited from the original shareholder. 

Some trusts, superannuation funds and life insurance companies have considered that these integrity provisions do not apply to them because they own the interests for the benefit of others (i.e. the beneficiaries) rather than for their own benefit.  The amendments will make it clear that this was never the intended interpretation of the integrity provisions.

The amendments will ensure that the integrity provisions also appropriately apply to stakeholders that are trusts, superannuation funds and life insurance companies in respect of capital gains tax (CGT) events that occur after 7:30pm (AEST) on 10 May 2011.

CGT exemption relating to renewable resources or preserving environmental benefits

Gains or losses arising from a right to a financial incentive granted to taxpayers under an Australian Government (Commonwealth, State or Territory) scheme that encourages the acquisition of renewable resource assets, or for their agreement to preserve a part of Australia’s environmental amenity, will be exempted from CGT. 

Examples of renewable resources assets include photovoltaic solar cells or solar hot water systems.  An example of preserving Australia’s environmental amenity is refraining from removing remnant vegetation.  This measure will also turn off the income tax recoupment rules in relation to any underlying assets (e.g. solar hot water systems) to ensure that the incentive keeps its full financial value.  This measure will apply to income tax assessments for the 2008 income year and later.

CGT – minor amendments to ensure the proper functioning of the provisions

Minor amendments will be made to ensure the proper functioning of the CGT and associated provisions.  The changes will include:

• Ensuring that the roll-over for the exchange of shares in one company for share in another company operate to defer the profit or loss where the original shares are held on revenue account at the time of the exchange.  This change will have effect from 7:30pm (AEST) on 10 May 2011.
• Amending the roll-over for certain disposals of assets by a trust to allow roll-over relief to apply where a transferee company or trust holds rights, just before the disposal or transfer time, associated with a deed or similar document that is designed to facilitate the transfer of assets into the company or trust.  The changes to the roll-over for the disposal of assets by a trust to a company will have effect for CGT events happening after 7:30pm (AEST) on 10 May 2011 and the changes for the transfer of assets between certain trusts will have retrospective effect for CGT events happening on or after 1 November 2008.
• Ensuring that gains and losses arising from life insurance policies that are generally exempted from CGT are not then taxed under the ordinary income tax provisions.  These changes will apply to CGT events happening in the 2006 income year and later.
• Legislating the current Tax Office administrative practice of allowing a testamentary trust to distribute an asset of the deceased person without a CGT taxing point occurring.  The income tax law in relation to deceased assets will also be rewritten using a principle based format.  These changes will apply to CGT events happening after the legislation receives Royal Assent.