Explanatory Memorandum(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)
Chapter 7 - Capital Gains Tax - Pre-requisite for roll-over relief for the transfer of assets within company groups. - Subdivision C of Division 3 (Part3) of the Bill.
7.1 The Bill will change the requirement for the granting of roll-over relief for assets transferred within a company group that the transferor and transferee companies be group companies for the whole of the income year in which the transfer occurred. The companies will need to be group companies only at the time of the transfer.
7.2 To ensure that efficiency-motivated corporate restructures are not unnecessarily impeded, by:
- removing the requirement for the granting of roll-over relief for assets transferred within a company group that the transferor and transferee companies be group companies for the whole of the income year in which the transfer occurred; and
- requiring that the transferor and transferee be group companies only at the time of the transfer.
7.3 The amendments to the roll-over relief provisions (section 160ZZO) will apply to disposals of assets that occur during the 1993-94 income year, and in any subsequent income year, of the transferor. Consequential amendments to sections 160ZZT, 160ZZRA and 160ZZRB will apply in the same way.
7.4 Consequential amendments to sections 160ZYK and 160ZYR will apply in relation to issues of rights or issues of options that occur during the 1993-94 income year, and in any subsequent income year, of the shareholder. The amendments to sections 26BC and 160ZZU will have effect from the same income year [Clause 43].
7.5 The CGT provisions of the Act (section 160ZZO) allow roll-over relief for assets transferred between group companies (ie. companies within a company group sharing 100% common ownership) because the underlying ownership of the assets does not change. The effect of roll-over relief is to maintain the pre-CGT status of assets acquired by the transferor before 20 September 1985, and to delay the realisation of an accrued gain on assets acquired on or after that date.
7.6 A pre-requisite for obtaining roll-over relief is that the transferor and transferee companies must, except in certain specified circumstances, be group companies for the whole of the year of income in which the transfer takes place. Therefore, roll-over relief would not be available for the transfer of assets between two group companies in a particular year of income if one of those companies was acquired by the group, or disposed of by the group, at some time in that year.
7.7 There is now a general anti-avoidance provision (section 160ZZOA) which recaptures roll-over relief in certain circumstances to prevent inappropriate use of the group company roll-over provisions. This anti-avoidance provision deems a disposal and re-acquisition for market value of an asset for which roll-over relief has been claimed if the asset held by the transferee company subsequently leaves the control of the company which, at the time of the transfer, was the ultimate holding company of the group. This is because the group will have effectively disposed of the asset. Certain exceptions to the recapture are provided in the other amendments in this Bill (see Chapter 8).
7.8 In light of the deemed disposal and re-acquisition rule explained above, it is not necessary to require that the group company relationship exist for the whole of the income year in which the transfer takes place. Instead of requiring that the group relationship exist for the whole of the income year, it would be sufficient for the Act to provide that the group relationship should exist at the date of the transfer. In such cases it is appropriate to provide roll-over relief (there being no change in underlying ownership of the asset), and the deemed disposal and re-acquisition rule will ensure that inappropriate use is not made of the roll-over relief.
7.9 The Bill will also make consequential amendments to various other sections of the Act which make reference to the group company concept that currently exists in section 160ZZO, to take account of the changes made to section 160ZZO.
7.10 The legislation is being amended to change one of the requirements of eligibility for roll-over relief for the transfer of assets between companies in the same group. The amendment will mean that the companies now need not be group companies for the whole of the income year. They need to be members of a wholly owned group only at the particular time at which the transfer of the asset takes place [Clause 38 - amended paragraph 160ZZO(1)(b)].
7.11 The amendment to paragraph 160ZZO(1)(b) will provide that the transferee company should be related to the transferor company only at the time the disposal referred to in subparagraph 160ZZO(1)(a)(i) took place. Section 160G sets out what will constitute a 'related company' for the purposes of Part IIIA. The amendment adopts this concept to deal with the relationship that exists between companies at the time of transfer of the asset [Clause 38(a)].
7.12 The use of section 160G to determine the relationship between companies will mean that the section 160ZZO definition of group company, and accompanying definitions, are no longer required. Subsections 160ZZO(3) to (8B) are therefore omitted by these amendments [Clause 38(b)].
7.13 As a result of the changes to section 160ZZO, it is necessary to amend other sections which have reference to the concept of group companies in section 160ZZO.
7.14 Sections 160ZYK, 160ZYR and 160ZZT are amended to reflect the requirement that the companies concerned should be related companies at the particular point in time when a certain event occurs, rather than group companies for the year of income in which the event occurs [Clauses 36, 37 and 41 respectively].
7.15 Section 160ZZRB currently refers to the group company relationship existing at a particular time. The amendment will only reflect the change in the terminology used, from 'group company' (within the meaning of section 160ZZO) to 'related' [Clause 40].
7.16 As there will no longer be a definition of 'subsidiary' in section 160ZZO, sections 160ZZOA, 160ZZU, 160ZZRA and 26BC, which refer to the section 160ZZO definition, are amended to refer instead to the definition of 'subsidiary' contained in section 160G [Clauses 45, 42, 39 and 35 respectively].
7.17 The sections to which consequential amendments are made deal with:
- Section 26BC Securities lending arrangements
- Section 160ZYK Application - Rights to acquire shares
- Section 160ZYR Application - Company issued options to shareholders to acquire unissued shares
- Section 160ZZOA Break-up of company group after section 160ZZO application
- Section 160ZZRA Interpretation - Transfers of assets between companies under common ownership
- Section 160ZZRB When companies under common ownership
- Section 160ZZT Disposal of shares or interest in trust
- Section 160ZZU Keeping of records