Senate

Taxation Laws Amendment Bill (No. 2) 1994

Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)

Chapter 8 - Capital Gains Tax - Transfer of assets within company subgroups - Subdivision D of Division 3 (Part 3) of the Bill.

Overview

8.1 The Bill will ensure that there will be no realisation of a capital gain on an asset previously rolled over from one member of a subgroup of a company group to another merely because that subgroup leaves the ultimate holding company group, if that asset was not rolled over at any time from a company outside the subgroup into the subgroup.

Summary of proposed amendments

Purpose of amendments

8.2 The amendments will ensure that the deemed disposal and reacquisition rules under section 160ZZOA of the Act, as they relate to the transfer of assets within company subgroups, do not operate as an impediment to business restructures. They will not apply if the transferred asset has always remained within a discrete company subgroup, and that subgroup is subsequently disposed of by the ultimate holding company group [Clause 44].

Date of effect

8.3 The amendments to section 160ZZOA will apply to the break-up of company groups which occur after 16 December 1992, which is the date from which that section took effect [Clause 46].

Background to the legislation

Roll-over relief 8.4 The capital gains tax provisions (CGT) of the Act allow roll-over relief for assets transferred between companies which share 100% common ownership (ie. companies within a wholly owned company group). The effect of the roll-over relief is to maintain the pre-CGT status of assets acquired by the transferor before 20 September 1985, or to delay the realisation of an accrued gain on assets acquired on or after that date.

8.5 To ensure that CGT cannot be avoided by abusing the company group roll-over provisions, the Act provides in certain circumstances for a deemed disposal and reacquisition for market value of an asset for which roll-over relief has been claimed. The deemed disposal and reacquisition rules currently apply 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.

8.6 This deemed disposal and reacquisition rule may apply inappropriately in relation to subgroups of a company group. As an example, if an asset has been transferred between companies within a subgroup and the ultimate holding company of the group disposes of its shares in the holding company of the subgroup, there will be a deemed disposal and reacquisition of the asset even though it may have always been held within that subgroup. This would not have occurred if the asset had been retained at all times by only one company within the subgroup.

Explanation of amendments

8.7 The amendments will ensure that efficiency motivated reorganisations of company groups are not discouraged by the operation of the deemed disposal and reacquisition rules, while retaining their effectiveness as an anti-avoidance provision. The Act is being amended to ensure that if:

·
an asset has been rolled over only between members of a subgroup (including its holding company); and
·
one of the following paragraphs apply:

-
the asset is held by the holding company of the subgroup and the holding company leaves the group such that none of the shares of the company are held by companies in the group [Clause 45 - new subparagraph 160ZZOA(2)(f)(iii)]; or
-
the asset is held by a member of the subgroup and that member and the holding company of the subgroup leave the group at the same time such that none of the shares of those companies are held by companies in the group [Clause 45 - new subparagraph 160ZZOA(2)(f)(iv)] ;

then there will be no deemed disposal and reacquisition of the asset by reason of the subgroup companies leaving the ultimate holding company group [Clause 45 - new paragraph 160ZZOA(1)(ca)].

8.8 The amendments to section 160ZZOA will apply to the break-up of company groups which occur after 16 December 1992, the date from which section 160ZZOA took effect [Clause 46].


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