In brief

  • CGT scrip for scrip rules to be amended for mergers or takeovers occurring on or after 6 January 2010.  
  • CGT scrip for scrip rollover will now be available for schemes of arrangement and takeovers in circumstances where the same terms are not offered to each voting shareholder.  

The Assistant Treasurer announced on 6 January 2010 that the government will amend the CGT scrip for scrip rules to make it easier for shareholders receiving scrip in a merger or takeover to obtain rollover relief.

In summary, these measures should allow shareholdings of cornerstone investors to be acquired for consideration different to the consideration offered to the remaining shareholders. For example, it should allow the minority shareholders in AXA APH to obtain scrip for scrip rollover relief to the extent they receive AMP/NAB scrip from AMP/NAB in exchange for their AXA APH’s shares, even though AXA SA would receive cash for its 54% shareholding.

One of the requirements to obtain CGT rollover relief is that the shares are acquired under a ‘single arrangement’, meaning that the shares are acquired pursuant to an offer on substantially the same terms for all shareholders. In the last two years, the ATO has taken an increasingly expansive view on what is considered to be a ‘single arrangement’ for these purposes.

As a result, transactions that were separate but legally or economically interconditional were considered by the ATO to be a single arrangement. For example, scrip for scrip relief would be denied where one shareholder in the target was given cash and the remaining shareholders were given scrip under ‘back-to-back’ arrangements. While potential acquirers and cornerstone investors were beginning to consider structuring strategies to overcome this problem, such strategies could create separate issues.

The government has announced that, to obtain CGT rollover relief, it will not be necessary for mergers involving a courtapproved scheme of arrangement or a takeover governed by Chapter 6 of the Corporations Act 2001 (Cth) (Corporations Act) to satisfy the ‘single arrangement’ requirement. That is, it will not be necessary that all voting shareholders are able to participate in the merger, and more importantly, the same terms will not have to be offered to each shareholder.

These changes are stated to apply with effect to mergers and takeovers occurring on and after 6 January 2010 (although no legislation has been released by the government).

This is a welcome development and should remove a significant hurdle to potential scrip deals.  

Richard Hendriks