When undertaking a business restructure, a security sale facility is commonly used by listed entities to issue or transfer shares in a company or units in a trust for the benefit of foreign security holders. The purpose of a security sale facility is to circumvent complex legal requirements that regulate the issue or transfer of securities in foreign jurisdictions. But until now, the use of a security sale facility could deny vital capital gains tax (CGT) relief to all of the entity's security holders.

Where a security sale facility is used in a restructure, securities are issued or transferred to the security sale facility instead of the foreign security holder. The security sale facility owns the securities but is obligated to sell them and pass on the net proceeds to the former foreign security holders.

However, the use of a security sale facility may mean that certain requirements of any CGT roll-over relating to that restructure may not be able to be satisfied. In particular, some CGT rollovers for entity restructures require that:

  • All security holders must exchange their securities in the original entity for securities in the new entity; and
  • Each security holder owns the same, or in some cases substantially the same, percentage of securities in the new entity as they owned in the original entity.

It is these "same ownership requirements" that cannot be satisfied in respect of many common CGT rollovers that are vital to the tax effectiveness of a business restructure.

To alleviate this problem, new legislation will treat a foreign security holder as owning the relevant security in an entity at a time the security sale facility owns the security in that entity for the purposes of the relevant CGT roll-over.

The bill containing the proposed legislation is expected to be debated in the Senate this Thursday. All indicators suggest that the bill will be passed without amendment. The amendments will apply retrospectively from 11 May 2010.

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.