CGT Rollover and Division 615

The AusNet Case Closes a Loophole

One of the more technical updates this month involved capital gains tax (CGT) rollover relief under Division 615 — specifically, whether a restructure that already qualifies for rollover can also trigger a cost base step-up via tax consolidation.

This issue came to a head in AusNet Services Ltd v Commissioner of Taxation [2025] FCAFC 21, where the Full Federal Court delivered a clear message: you can’t have both.

What’s the issue?

The case involved a corporate restructure implemented through a share-for-share scheme of arrangement, where shareholders in multiple entities exchanged their interests for shares in a new head company — a common strategy when forming a tax consolidated group.

Under Division 615 of the ITAA 1997, such arrangements can qualify for automatic CGT rollover relief, provided certain tests are met — including that the restructure is for the purpose of reorganising a company’s “affairs.”

The taxpayer argued that even though the Division 615 rollover applied, they should still be entitled to restate (or “step up”) the tax cost base of the assets of the acquired subsidiaries when they joined the consolidated group.

What did the Court say?

The Full Federal Court sided with the Commissioner. It confirmed that:

Division 615 rollover applies automatically where its conditions are met — including where the restructure is for the purpose of reorganising a company’s “affairs.”
Because rollover applies, the pre-existing cost bases must be preserved.
There's no scope to reallocate acquisition cost to underlying assets via the tax consolidation provisions.

Put simply: if rollover applies, then the group takes the old cost base — no uplift allowed.

Why this matters

This decision reinforces a boundary that some corporate groups had tried to stretch — using consolidation entry rules to create a fresh cost base for assets immediately after a Division 615 restructure.

For practitioners, the implications are clear:

No double benefit: A restructure that qualifies for Division 615 rollover cannot also trigger asset revaluation under the tax consolidation rules.

Automatic rollover is binding: Even if the taxpayer does not intend to apply rollover relief, it applies by law where the conditions are met.

CGT forecasting must be conservative: Any future asset sales by the consolidated group will use historical cost bases, not uplifted values.

Implications for group restructures

This decision narrows the options for group restructures involving share-for-share exchanges, especially where a consolidation is planned post-restructure.

Key takeaways for practitioners:

If a restructure qualifies for Division 615 rollover, expect existing cost bases to carry through. No uplift will be available via consolidation.

CGT outcomes should be modelled with rollover limitations in mind, particularly if future asset sales or capital gains are likely.

In some cases, there may be merit in exploring alternative structures (e.g. direct asset acquisitions or partial share sales) that do not engage Division 615 — though commercial and legal implications must be weighed.

It’s critical to assess the automatic operation of Division 615 — clients may not realise that rollover applies even without an election.

Technical observations

While the decision closes off a potentially generous outcome, it brings clarity. Division 615 rollovers serve a specific policy function — to facilitate restructures without immediate tax cost. But they do not create an opportunity to arbitrage tax cost bases through consolidation timing.

In practice, any restructuring strategy aiming to optimise CGT and group tax outcomes will need to evaluate whether Division 615 is desirable or avoidable, and if avoidable, whether an alternative transaction structure (such as a direct asset sale) provides a better long-term tax profile.

The AusNet decision tightens the landscape for advisers involved in corporate restructuring, and signals the Court’s ongoing support for the integrity of rollover provisions as a deferral tool, not a reset mechanism.