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  • Scrip for scrip roll-over

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    If a company in which you owned shares was taken over and you received new shares in the takeover company, you may be entitled to scrip for scrip roll-over. You may also be eligible for this roll-over if you exchange shares in a company, a unit or other interest in a fixed trust, or other interests, for example, options for a similar interest in another entity.

    Scrip for scrip roll-over is not available if a share is exchanged for a unit or other interest in a fixed trust, or if a unit or other interest in a fixed trust is exchanged for a share.

    You can only choose the roll-over if you have made a capital gain from such an exchange on or after 10 December 1999. Roll-over does not apply to a capital loss.

    Roll-over is only available if the exchange is a result of the acquiring entity (or the wholly owned group of which it is a member) becoming the owner of 80% or more of the original company or trust.

    An entity (or group) can become the owner of 80% or more of the relevant interests in the original entity as a result of acquiring additional interests or cancelling interests held by others.

    For companies, the arrangement must be one in which all owners of voting shares in the original entity can participate. For trusts, this means all owners of trust voting interests in the original entity or, where there are no voting interests, all owners of units or other fixed interests can participate.

    There are special rules if a company or trust has a small number of shareholders or beneficiaries or there is a significant common stakeholder. You will need to seek information from the company or trust about whether the conditions listed have been satisfied.

    The roll-over allows you to disregard the capital gain made from the original shares, units or other interest. You are taken to have acquired the replacement shares, units or other interest for the cost base or a portion of the cost base of the original interest (you use a portion if an original interest is not exchanged for a single replacement interest-for example, if one share is exchanged for two).

    You may only be eligible for partial roll-over if you exchange shares, units or interests for similar interests in another entity (replacement interest) plus something else, usually cash.

    This is because roll-over applies only to the replacement interest. You will need to apportion the cost base of the original interest between the replacement interest and the cash (or other proceeds not eligible for roll-over).

    If your original shares, units or other interest were acquired before 20 September 1985 (pre-CGT), you are not eligible for scrip for scrip roll-over. Instead, you acquire the replacement interest at the time of the exchange and the replacement interest is no longer a pre-CGT asset. However, the cost base of the replacement interest is its market value just after the acquisition.

    Example
    Scrip for scrip roll-over

    Stephanie owns ordinary shares in Reef Ltd. On 29 February 2001, she accepts a takeover offer from Starfish Ltd under which she receives one ordinary share and one preference share for each Reef share. The market value of the Starfish shares just after Stephanie acquires them is $20 for each ordinary share and $10 for each preference share.

    The cost base of each Reef share just before Stephanie ceased to own them was $15.

    The offer made by Starfish Ltd satisfies all the requirements for scrip for scrip roll-over.

    If roll-over did not apply, Stephanie would have made a capital gain per share of:

    $30

    -

    $15

    =

    $15

    Capital proceeds

     

    cost base

     

    capital gain

    Scrip for scrip roll-over allows Stephanie to disregard the capital gain. The cost base of the Starfish shares is the cost base of the Reef Ltd shares.

    Note
    Apportioning the cost base

    As the exchange is one share in Reef Ltd for two shares in Starfish Ltd, the cost base of the Reef share needs to be apportioned between the ordinary share and the preference share.

    Cost base of ordinary share: $20/ 30 x $15 = $10

    Cost base of preference share: $10/ 30 x $15 = $5

    Last modified: 31 Aug 2010QC 16195