On 14 December 2013, the Government announced it would proceed with amendments first announced in May 2012 to tighten the scrip for scrip roll-over rules. The intention is to make it harder for companies and trusts to avoid capital gains tax when they sell subsidiary companies other than as part of a genuine merger or restructure of their business.

The proposed amendments:

  • expand the significant and common stakeholder tests to include any entitlements that interest holders have to acquire additional rights;
  • provide that a capital gain arising on the settlement of a debt owed by an acquiring entity to its parent company as part of the scrip for scrip acquisition is no longer disregarded;
  • extend the application of the cost base allocation rules regardless of whether the interest is issued to the group’s parent company or to another member of the group;
  • introduce a new condition on the availability of scrip for scrip roll-over relief in downstream acquisitions; and
  • extend the application of the restructure provisions to trusts restructures.

The amendments apply in relation CGT events happening after 7.30 pm, by legal time in the Australian Capital Territory, on 8 May 2012.

[Treasury website] [LTN 80, 29/4/15]

Extract from Draft Explanatory Memorandum

Stakeholder rules and entitlements to acquire rights

1.1               Amendments are made to ensure that entitlements to acquire relevant interests are taken into account in the significant and common stakeholder tests. This is achieved by treating any entitlement to acquire relevant interests to have been realised. [Exposure Draft, item 8, subsections 124‑783A(1) and (2) of the ITAA 1997]

1.2               The relevant interests assessed under the stakeholder tests (for example voting rights in a company) are known as ‘stake interests’. An entitlement to acquire stake interests includes entitlements arising under a right, option, share or other interest (a ‘stake option’). [Exposure Draft, item 8, subsections 124-783A(3) and (4) of the ITAA 1997]

1.3               Where a stake option may be exercised or converted in a number of ways or has a variable outcome in terms of the stake interests acquired, it is assumed that the maximum number of stake interests possible is realised. In some circumstances, it may not be possible to ascertain the maximum amount with certainty and a reasonable estimation will be required.

1.4               The rule does not apply in situations where an interest holder has an entitlement to exercise an option that diminishes its holding, such as a put option.

1.5               This rule does not apply to stake options or interests that cannot be realised within five years of the scrip for scrip arrangement being completed. The integrity rule is targeted towards short-term entitlements that distort the application of the stakeholder rules without having an ongoing impact on the commercial positions of the relevant entities. [Exposure Draft, item 8, subsection 124-783A(3) of the ITAA 1997]

1.6               The amendments apply in addition to the current law. That is, if an entity would have a significant or common stake under the current law (section 124-783), they will continue to do so under the amended law. [Exposure Draft, item 8, subsection 124-783A(5) of the ITAA 1997]

Repayment of debt within corporate groups

1.7               Subsections 124-784(3) and 124‑784C(3) provide that, if a loan is repaid by the acquiring entity to its ultimate holding company, any capital gain made on the debt from that repayment is disregarded.

1.8               Those provisions are repealed as part of a broader rewrite of sections 124-783 and 124-784C. [Exposure Draft, items 8 and 11, sections 124‑784 and 124-784C of the ITAA 1997]

1.9               This amendment ensures that the full value of a capital gain deferred under the scrip for scrip roll-over is recovered through the operation of the stakeholder rules. Replacement entities that are controlled by original interest holders who are significant or common stakeholders will not be able to shelter the capital gain with the use of intra-group debt.

Cost base allocation rules

1.10            Sections 124-784 and 124-784C contain cost base allocation rules for debt and equity issued as part of a downstream acquisition. The cost base of the parent company’s debt or equity received is determined by reference to the acquisition cost of the membership interests in the original company that the acquiring entity acquires.

1.11            Currently, the rules only apply to debt and equity issued by an acquiring entity to the parent company of the group. An amendment is made to apply these rules equally where the acquiring entity issues debt or equity to another member of the group. [Exposure Draft, items 8 and 11, sections 124-784 and 124-784C of the ITAA 1997]

1.12           To prevent structuring that circumvents these expanded rules, a new condition is placed on the availability of scrip for scrip roll-over relief. That is, roll-over relief will not be available where the acquiring entity has issued debt or equity (other than a replacement interest) to an entity outside the wholly-owned group. [Exposure Draft, item 4, paragraph 124‑780(3)(f) of the ITAA 1997]

1.13           This rule will prevent scenarios where the acquiring entity issues debt or equity to another member of the group through an interposed entity that is not part of the wholly-owned group.


1.14           A number of amendments are made to the scrip for scrip roll-over in order to align the treatment of trusts with that of companies.

1.15           The primary amendment is to allow the restructure provisions to apply to trusts. [Exposure Draft, item 9, subparagraph 124-784(1)(a)(i) of the ITAA 1997]

1.16           Currently, the method statement in section 124-784A relies on calculating the market value of shares and associated rights and options. An amendment is made to expand the scope of the method statement to include units in trusts and options and rights to acquire units. [Exposure Draft, item 10, step 3 of the method statement in subsection 124-784A(2) of the ITAA 1997]

1.17           Further amendments are made to the trust roll-over provision (section 124-781) and the common stakeholder provisions (subsections 124-783(9) and (10)). The amendments include trusts in the defined term ‘replacement entity’ and apply this term in a standardised way so that it applies correctly to both companies and trusts. [Exposure Draft, items 5 and 7, subparagraphs 124-781(1)(a)(i) and (ii), and subsection 124-783(9) and (10) of the ITAA 1997]