Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)CHANGE OF TITLE - TAX LAW IMPROVEMENT BILL (No. 1) 1998 - SENATE - Explanatory Memorandum.
Chapter 2.17 - Same asset roll-overs
Overview
This segment covers the rules rewritten in Division 126 that allow a roll-over when a CGT asset is disposed of to, or created in, another entity.
Part A summarises these rules.
Part B explains the changes to the 1936 Act.
Part C identifies provisions of the 1936 Act that have not been rewritten.
A. Summary of the new law
Subdivision 126-A: Marriage breakdown
Subdivision 126-A gives automatic roll-over relief where a CGT asset is transferred to a spouse or former spouse because of marriage breakdown.
Court orders and maintenance agreements
It covers assets transferred because of:
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- a court order under the Family Law Act 1975 or a maintenance agreement approved under that Act or under a corresponding foreign law; or
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- a court order under a State, Territory or foreign law relating to ending of a defacto marriage.
[subsection 126-5(1)]
B. Discussion of changes
Division 126 Same-asset roll-over events
Allow the 12 month qualifying period for indexation to be satisfied by taking into account the period of ownership of both parties.
The extension of indexation in these cases is consistent with the general design of the roll-over provisions.
Section 126-15 Company or trustee transfers CGT asset to a persons spouse
Provide a general principles approach to replace the detailed and complex formulae that apply under the 1936 Act where an asset held by a company or trust is transferred to a spouse or former spouse as a result of a marriage breakdown.
In such cases, the cost base or reduced cost base of the shares, units and other interests in the company or trust will be reduced by an amount that reasonably reflects the fall in their market value as a result of the transfer of the asset.
The 1936 Act provisions are excessively complicated and apply rarely. The result under the simplified approach is the same.
In determining what is a reasonable reduction in the cost base or reduced cost base, regard is to be had to:
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- the resultant reduction in the assets and liabilities of the company or trust;
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- the market value of the shares, units or other interests immediately before the transfer;
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- whether the roll-over asset was acquired by the transferor before or after 20 September 1985; and
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- whether the shares, units or other interests in the company or trust were acquired before or after 20 September 1985.
Section 126-85 Subsidiary company liquidation
Align the treatment of interim liquidation distributions with that of final distributions if the company is dissolved within 18 months of the interim distribution.
The 1936 Act provided a reduction only to in specie distributions that were part of the final distribution to the holding company by the liquidator in the course of winding up the subsidiary.
The rewrite of CGT event G1 [section 104-135] aligned the treatment of interim distributions within 18 months of the dissolution of the company with that of final distributions. The CGT consequences of those distributions are now to be determined under CGT event C2 [section 104-25] . This change similarly aligns the roll-over available for interim distributions within 18 months of the dissolution of the company to that available for final distributions.
C. Provisions of the old law not rewritten
Redundant provisions of the 1936 Act not rewritten are summarised in the following table:
| Provision | Subject | Reason for omission |
|---|---|---|
| 160ZZPI & 160ZZPIA | Merger of superannuation funds before 1 July 1997. | The 1997 Act applies prospectively. |
| 160ZZM(2) 160ZZMA(3) 160ZZO(2) | Claw back of indexation of transferors cost base of an asset from acquisition to roll-over if it is disposed of by the transferee within 12 months of acquisition by the transferor. | The rewrite of the indexation rules in Division 114 achieves the same result. |
| 160ZZO(1)(a)(iii) | Requirement for asset to be a taxable Australian asset of the transferor if it is disposed of before 26 May 1988 to a non-resident company. | The time requirement can no longer be satisfied. |