Capital gains tax: scrip for scrip roll-over - choice not to apply roll-over to all interests exchanged

Can a taxpayer choose scrip for scrip roll-over under Subdivision 124-M of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to only some interests exchanged under an arrangement?

Yes. Roll-over under Subdivision 124-M of the ITAA 1997 can be chosen in respect of some interests exchanged under an arrangement.

A taxpayer owned shares in ABC Company acquired after 19 September 1985.

XYZ Corporation made an unconditional takeover offer to all shareholders of ABC Company in the 2002-03 income year, offering three shares in itself for each ABC Company share.

The taxpayer accepted the offer. The taxpayer was eligible to choose scrip for scrip roll-over in relation to each share disposed of under the takeover. However, because the taxpayer had net capital losses from earlier years, the taxpayer did not want to choose roll-over for all of the shares.

Each share or interest in a company or trust is considered to be a separate asset for CGT purposes.

There is no requirement in Subdivision 124-M of the ITAA 1997 that a taxpayer must choose to apply scrip for scrip roll-over to all interests that are exchanged under an arrangement.

To the contrary, paragraph 124-780(3)(a) of the ITAA 1997 (about company interests) and paragraph 124-781(3)(a) of the ITAA 1997 (about trust interests) specify that roll-over is not available for interests acquired before 20 September 1985. Further paragraph 124-780(3)(b) of the ITAA 1997 (about company interests) and paragraph 124-781(3)(b) of the ITAA 1997 (about trust interests) provide that roll-over cannot be chosen in respect of an interest for which a capital loss was made.

Therefore, the taxpayer may choose scrip for scrip roll-over in relation to some of their shares disposed of under the arrangement.

Any capital gain the taxpayer makes from shares for which roll-over is not chosen must be included in the calculation of the taxpayer's net capital gain for the income year in which the shares were disposed of.

There are no formal requirements for choosing scrip for scrip roll-over. The way the taxpayer prepares their tax return is sufficient evidence of the making of a choice (subsection 103-25(2) of the ITAA 1997).