The Government announced in the 2012-13 Budget that it would make several changes to support the effective operation of the 2011-12 Budget measure providing greater consistency in the application of the scrip-for-scrip roll-over and small business concessions.
In particular, the 2012-13 Budget announcement is designed to ensure that the provisions concerning absolutely entitled beneficiaries, security providers and companies in liquidation interact appropriately with the CGT provisions generally and with the connected entity test in the small business entity provisions.
A Proposals Paper has now been released. It sets out, in broad terms, how the measure may be implemented and will form the basis of consultation on the policy design of this measure.
COMMENTS are due by 18 July 2012.
[LTN 118, 21/6]
The 2011‑12 Budget Measure
The 2011‑12 Budget included a measure to provide a more consistent application of particular provisions in the capital gains tax (CGT) scrip for scrip roll‑over and the small business concessions to trusts, superannuation funds and life insurance companies.
That Budget measure aims to ensure the effective operation of the integrity rules in sections 124‑782 and 124‑783 of the scrip for scrip roll‑over provisions of the Income Tax Assessment Act 1997 (ITAA 1997). In particular, that measure seeks to ensure that the concepts of ‘significant stake’ and ‘common stake’ apply effectively, and as originally intended, to trusts and other entities that hold interests for the benefit of other entities.
The 2011‑12 Budget measure similarly seeks to ensure the effective operation of the rules in section 328‑125 of the ITAA 1997 for testing whether one entity is ‘connected with’ another entity for the purposes of the small business concessions.
These policy outcomes are to be achieved by removing references to ‘for their own benefit’ and ‘beneficial’ from the relevant parts of the scrip for scrip roll‑over and the small business entity provisions, so that the provisions are based on ‘the right to receive’, ‘ownership’ or ‘the right to acquire ownership’ as they respectively relate to the significant stake and common stake concepts, and the connected entity test.
In designing and consulting on the 2011‑12 Budget measure, it became apparent that there were interaction issues with the CGT provisions dealing with absolutely entitled beneficiaries, security arrangements, liquidators and bankruptcy.
The 2012‑13 Budget Measure
As a result of these interaction issues, the 2012‑13 Budget included a measure to make several changes to support the effective operation of the 2011‑12 Budget measure providing greater consistency in the application of the scrip for scrip roll‑over and small business concessions.
In particular the 2012‑13 Budget measure will ensure that the provisions concerning absolutely entitled beneficiaries, security providers and companies in liquidation interact appropriately with the CGT provisions generally and with the connected entity test in the small business entity provisions. This measure will also ensure that the bankruptcy rule in section 106‑30 of the ITAA 1997 applies to the connected entity test.
The 2012‑13 Budget measure also ensures that consequential impacts on the A New Tax System (Wine Equalisation Tax) Act 1999 through the operation of the changes to the connected entity test apply to wine producers from the first financial year after the amending legislation receives Royal Assent.