Scrip for Scrip Roll-Over

The scrip for scrip roll-over provides beneficial capital gains tax ("CGT") concessions particularly when one company or unit trust merges or is being taken over by another company.

Under the roll-over provisions a small business operated as a company or through a unit trust could merge with another company without the owner of the business realising a CGT liability at that time. Broadly, under the scrip for scrip roll-over the owners of the business exchange their shares or trust units in their company for shares in the takeover company thereby deferring CGT liability until shares in the acquiring company are sold.

The scrip for scrip roll-over provides enormous benefits for small to medium companies being taken over by listed companies. The roll-over essentially allows the business owners in the small or medium company to convert their relatively illiquid assets into relatively liquid assets (ie, listed shares). The advantage of the roll-over relief is not only to defer a CGT liability but to also provide the small or medium business owner the flexibility to realise their CGT liability as and when the business owner desires. The conversion to listed shares also allows the business owner to control the amount of CGT liability to realise at a particular time to suit his or her financial circumstances.

Small to medium business owners who don’t qualify for the "Small Business CGT Concessions" (ie, those who have net assets over $5 million) are the most to benefit from the roll-over relief and should try to structure a take over of their company in a way to take advantage of such roll-over relief.