In December 2019, the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar MP announced that the Board of Taxation (Board) would undertake a review of capital gains tax (CGT) roll-over rules.
The purpose of the review is set out in the terms of reference.
Terms of reference
The taxation law currently allows certain CGT events to occur without crystallising liabilities to tax in circumstances where it is considered appropriate for the CGT liability to be deferred until a later time (i.e. the CGT liability is ‘rolled over’). Over time, the provisions catering for these circumstances have multiplied to the point where navigating the law is difficult.
The Board of Taxation (Board) is requested to identify and evaluate opportunities to rationalise the existing CGT rollovers and associated provisions into a simplified set that have a substantially similar practical effect, but are easier to use and interpret. This may give rise to recommendations to repeal unnecessary rollovers, or express them in a more principled fashion, so that one can do the work of many. In doing so the Board should have regard to the two main categories of rollovers, namely, rollovers where there is no change in underlying economic ownership after the CGT event and rollovers where the disposal is involuntary (i.e. effectively forced upon the taxpayer at a particular time rather than occurring at a time chosen by them).
If the Board comes to the view that the system would benefit from additional categories of rollovers to complement the two key principles above, then the Board may suggest these as options for the Government to consider. In doing so, the Board should ensure that any proposals that defer capital gains tax encourage the active use of assets in the economy and, consequently, support the payment of income tax on profits generated from using those assets (for example, when compared with no change in ownership).
In general, the Board’s proposed principles-based rollovers should simplify the process of giving advice on rollovers and reduce the regulatory burden on affected businesses, while:
- protecting the tax system against the risk that any CGT deferral becomes permanent; and
- having regard to the overall revenue cost of the system of rollovers and the integrity of the tax system generally.
The Board should identify the advantages and disadvantages of its proposals, any potential revenue cost, and any relevant integrity concerns. The Board should also consider the broader effects of any proposed changes outside of the CGT provisions.
The Board provided interim written advice to the Government on 25 March 2021.
The Board has established a working group for the review, comprising Craig Yaxley (Chair), Ann-Maree Wolff and Mark Pizzacalla, representatives from the tax profession, academia, Treasury and the ATO.
In February 2020, the Board published a consultation guide in which it provided an overview of the current suite of roll-overs and the policy considerations that are central to evaluating and improving the framework of roll-over relief. The guide also posed a number of questions for interested parties to think about when formulating input to the review.
The Board received 16 written submissions.
A series of roundtable consultation sessions were conducted including two face-to-face consultations in February 2020 and eight virtual consultations over May and June 2020. The initial consultation period was extended in response to the COVID-19 pandemic.
The Board published a second consultation paper for stakeholder review and input on 23 December 2020. The paper sets out the Board’s first-stage proposal for rationalising (and replacing) seven of the key roll-overs that deal with the most common business restructuring transactions, including mergers (i.e. takeovers), demergers, and internal reorganisations.
An overview of the second consultation paper is provided in the following information video.
The Board received 23 written submissions. In addition, a series of targeted virtual consultation sessions were conducted over January, February and March 2021.
Submissions made in response to initial consultation
|Australian Petroleum Production & Exploration Association||921KB|
|The Association of Superannuation Funds of Australia Limited||557KB|
|The Association of Superannuation Funds of Australia Limited - Attachment||354KB|
|Financial Services Council||470KB|
|Financial Services Council - Attachment||635KB|
|Law Council of Australia||278KB|
|Minerals Council of Australia||416KB|
|Property Council of Australia||252KB|
|Telan Lawyers - Attachment (Brownlee)||420KB|
|Telan Lawyers - Attachment (Figot)||0.99MB|
|The Tax Institute||137KB|
Submissions made in response to second consultation
|Australian Institute of Superannuation Trustees||196KB|
|B J Ghantous & Co Pty Ltd||309KB|
|Charted Accountants Australia and New Zealand||226KB|
|Corporate Tax Association||146KB|
Deloitte - Appendix C
|Ernst & Young||33KB|
|Financial Services Council||239KB|
|KPMG - Appendix A||130KB|
|KPMG - Supplementary submission||103KB|
|Law Council of Australia||174KB|
|Minerals Council of Australia||391KB|
|Property Council - Appendix A||114KB|
|The Association of Superannuation Funds of Australia Ltd||185KB|
|The Tax Institute||180KB|