Bill Modifies Scrip For Scrip Tax Implications Of Corporate Restructures

On 3 December 2008, the Federal Government introduced the Tax Laws Amendment (2008 Measures No 6) Bill 2008 proposing new integrity rules targeted at scrip based corporate restructures that are not genuine takeovers. The rules will be most detrimental to scrip takeovers where the target entity is acquired at a premium to the existing tax cost of its net assets, such that the acquirer obtains a step-up in the value of those assets. A review of all scrip takeovers, however, will be required to determine whether the new rules apply.

Broadly, under the proposed amendments, where an arrangement that qualifies for capital gains tax (CGT) scrip for scrip roll-over is taken to be a "restructure", the cost base of the shares acquired will reflect the existing tax value of the net underlying assets of the target entity, rather than the market value of that entity.