Contact: Anthony Cipriano
Deloitte
Tax Partner
+61 (0) 8 9365 7110

Contact: Amanda Kennedy
Deloitte
Media & Communications Manager
+61 (0) 3 9208 7404

A proposed change to the consolidation regime announced on Friday that impacts how assets in mergers and acquisitions scrip transactions are valued for tax, may put the M&A industry on hold said Deloitte Tax Partner Anthony Cipriano.

“With this uncertainty, the industry does not know how to value the assets of a company and consequently how to model M&A transactions,” Mr Cipriano said.

“The Minister’s clarification announced today has at least cleared the way for transactions announced prior to 13 October 2007 to not be adversely impacted by this proposed change.

“Going forward, without knowing how the tax consolidation rules work where scrip consideration is provided by the acquiring company, groups are in limbo and unable to structure deals with any certainty as to the tax outcomes.

“Previously companies undertaking an acquisition using scrip consideration were able to “reset” the tax value of the target’s assets and obtain increases in tax deductions like depreciation, trading stock and some intellectual property.

"Importantly, this outcome was consistent with one of the stated objectives of tax consolidations, that being to align the tax treatment of an asset purchase with that of buying 100% of a company.

“This position has helped fuel an extremely hot M&A market in Australia however,  questions around its application going forward may put a sudden hold on the number of transactions we see in Australia.

“Until the market receives certainty on what laws will apply going forward, I would expect many transactions to be in a holding pattern.

“This potentially affects all ASX-listed companies, not just those at the top end of town.”