• Rollover relief FAQs

    Does rollover relief apply to all types of corporate takeovers or restructures?

    No. Rollover relief does not apply to all types of corporate takeovers or restructures. It applies to 100% takeovers, mergers, demergers or other forms of restructure that result in you acquiring replacement ESS interests in the new company.

    What are matching ESS interests?

    Matching ESS interests are the ESS interests you received in the new company that replace the ESS interests you had before the corporate takeover or restructure. To be eligible to continue to defer your discount, the value of matching ESS interests, together with any cash or other consideration provided to you, should be no more than the value of your ESS interests in the old company immediately before the corporate takeover or restructure happened.

    In relation to stapled securities or rights to acquire stapled securities, rollover relief can also apply to the replacement of:

    • a share with a stapled security
    • a stapled security with a different stapled security, and
    • a stapled security with a share.

    Are there conditions that need to be met for rollover relief to apply?

    Yes. The conditions that need to be met for rollover relief to apply to you are all of the following:

    • immediately before the corporate takeover or restructure, you held shares or rights in the old company that you acquired under an ESS
    • at or about the time you acquired the matching ESS interests, you were an employee of the new company (or its holding company or subsidiary)
    • your matching ESS interests are ordinary shares or rights to acquire ordinary shares
    • without the rollover relief, you would have had a cessation time or deferred taxing point resulting from the corporate takeover or restructure, and
    • at the time you acquired the matching ESS interests    
      • you did not hold a legal or beneficial interest in more than 10% of the shares in the new company (5% if you acquired the interests before 1 July 2015)
      • you did not control more than 10% of the maximum voting rights in the new company (5% if you acquired the interests before 1 July 2015).
      • Your 10% ownership and voting rights includes the ownership and voting rights of your associates. It also includes the ownership of shares and the voting rights you would have if you exercised any rights you hold to acquire shares in the new company.
       

    How does the rollover relief operate?

    On a corporate takeover or restructure, if you receive matching ESS interests in the new company that replace ESS interests in the old company and the conditions for rollover relief are satisfied, rollover relief will be provided by treating your:

    • matching ESS interests as if they were a continuation of your ESS interests in the old company, and
    • employment with the new company (or its holding company or subsidiary) as a continuation of your employment in the old company (or its subsidiary).

    Does rollover relief apply if you receive matching ESS interests, cash and other consideration in a corporate takeover or restructure?

    Yes. Rollover relief applies to the extent that your matching ESS interests are regarded as a continuation of your ESS interests in the old company. You will have a cessation time or deferred taxing point for your ESS interests in the old company to the extent that you receive for the disposal of those ESS interests:

    • cash or other consideration, or
    • matching ESS interests that are not treated as a continuation of your ESS interests in the old company - for example, if you are not an employee of the new company (or the new company's holding company, subsidiary or subsidiary of its holding company).

    How is a payment by you for ESS interests in the old company apportioned?

    Where you paid an amount to acquire ESS interests in the old company, the payment is apportioned between:

    • your matching ESS interests in the new company, that are treated as a continuation of your ESS interests in the old company, and
    • anything else that matches your ESS interests in the old company, including:    
      • cash or other consideration you received under the corporate takeover or restructure
      • other matching ESS interests you hold in companies (including the old company) immediately after the corporate takeover or restructure.
       

    The apportionment is based on their market values immediately after the corporate takeover or restructure. This allows you to apportion your payment between your ESS interests in the old company that have rollover relief and those that have a cessation time or deferred taxing point.

    Where you acquired different parcels of ESS interests in the old company at different prices, you need to apportion the payment based on an average of those prices. (See Examples to demonstrate how this applies to you.)

    Will rollover relief be available where the matching ESS interests do not have the same restrictions or conditions as the ESS interests in the old company?

    If you acquire matching ESS interests before 1 July 2009 and they do not have the same restrictions or conditions attached to them, rollover relief is still available provided you satisfy the conditions for rollover. Relief will be available for you until the cessation time or deferred taxing point occurs.

    For matching ESS interests acquired after 30 June 2009, rollover relief will only apply where the new interests can reasonably be regarded as matching the old interests.

    Will you have capital gains tax (CGT) consequences from the corporate restructure where rollover relief applies?

    No. You disregard any capital gain or loss that results from the happening of a CGT event on a corporate takeover or restructure where rollover relief applies to you.

    Examples

    Application of rollover relief to takeovers

    Fred acquired 1,000 shares in company A under an ESS. He deferred declaring his discount as income. Two years later, company B buys all shares in company A under a takeover. Fred's shares in company A which had a market value of $1 at the takeover time are replaced with 2,000 shares in company B which had a market value of $0.50 at the takeover time. Following the takeover, Fred is employed by company B. Fred satisfies the conditions for rollover relief.

    Before takeover

    After takeover

    Company A

    Fred:

    • employed by company A
    • holds 1,000 x $1 shares in company A.

     

    Company B

    Fred:

    • employed by company B
    • holds 2,000 x $0.50 shares in company B.

     

    Fred is entitled to rollover relief. This is achieved by treating:

    • the 2,000 matching shares in company B as if they were a continuation of the 1,000 shares in company A
       
    • his employment with company B as a continuation of his employment with company A.
    End of example

     

    Steve acquired 1,000 shares in company D under an ESS for $500. He deferred declaring his discount as income. Three years later, company E buys all shares in company D under a takeover providing consideration of 80% shares and 20% cash. Steve's 1,000 shares in company D which had a market value of $1 at the takeover time are replaced with 1,600 shares in company E which had a market value of $0.50 at the takeover time and $200 cash. Following the takeover, Steve is employed by company E.

    Before takeover

    After takeover

    Company D

    Steve:

    • employed by company D
    • holds 1,000 x $1 shares in company D.

     

    Company E

    Steve:

    • employed by company E
    • holds 1,600 x $0.50 shares in company E and $200 cash.

     

    Steve's tax position after the restructure is:

    • the 1,600 matching shares in company E - rollover relief applies as these shares are treated as if they were a continuation of the 800 shares in company D (80% of 1,000 shares) and his employment with company E is treated as a continuation of his employment with company D.
       
    • the $200 cash - a cessation time will occur for 200 shares in company D (20% of 1,000 shares) because these shares were replaced by cash. The $200 cash matches the value of the 200 shares in company D (200 shares x $1).

    As Steve paid $500 for the 1,000 shares in company D, he will apportion this payment as follows:

    • $400 (80% of $500) to the shares in company D that received rollover relief
       
    • $100 (20% of $500) to the shares in company D that have a cessation time or deferred taxing point. Steve will include a discount of $100 ($200 less $100) in his assessable income in the income year of the takeover.
    End of example
      Last modified: 01 Jul 2015QC 27176