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.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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