As at October 2015 the Australian Stock market was comprised of 2,216 listed entities with a combined market capitalisation of $1,596,640 million. The listed entities include 1,971 Australian companies, 112 foreign, and 133 wholesale and retail debt issuers. Further details are available at www.asx.com.au.
Taxpayers are invested in both Australian Stock Exchange listed companies and foreign companies listed on overseas stock exchanges. Merger and takeover activity is increasing so investors often find the company they originally invested in taken over by another company.
This tax strategy details the tax consequences for investors when company takeovers occur. Scrip for scrip rollover can apply where an investor’s shares in company A are taken over and exchanged for shares in company B.
The capital gains tax rollover is only available where the acquiring company (company B) ends up acquiring a minimum of 80% of the original company (company A).
Without the benefit of scrip for scrip rollover the shareholders of company A would be assessed on the sale of their shares in company A and have a tax liability (even though they have received no cash consideration).
In contrast, partial scrip for scrip rollover occurs where company A shares are exchanged for company B shares plus some cash consideration. The cash consideration received will be a capital gains tax event and the capital gain or loss on sale will need to be calculated (with the original cost base of company A shares apportioned between the cash consideration and the company B shares received).