TAX TIP #3: CGT ROLLOVERS | INTERPOSITION OF HOLDING COMPANY

Facts

Trust T wholly owns Company C.

The proposal is to interpose a new Company H between Trust T and Company C.

The result is as follows:

1. Trust T wholly owns Company H; and

2. Company H wholly owns Company C.

Question

Which rollover is applicable?

Answer

Subdivision 124-M (Scrip for Scrip) Rollover is available. Note, subdivision 615 (share exchange) Rollover is not available.

Tax Tip

1. The reason why subdivision 615 Rollover is not available is that it requires at least two (2) shareholders to be involved. In this case, as there is only a single shareholder, subdivision 615 cannot apply however subdivision 124-M can apply.

2. Subdivision 124-M is a bit more complex than subdivision 615 and advisors must consider the further conditions in subdivision 124-M (which are not considered in subdivision 615), being:

   1. dealing at arm’s length (generally not because it is a related party transaction);

   2. if not at arm’s length, the less than 300 members requirement;

   3. same linked group requirement; and

generally these further conditions are readily satisfied but must be considered and analysed nonetheless.

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