ATO Interpretative Decision
ATO ID 2001/764 (Withdrawn)
Income Tax
Income Tax: Capital gains tax: roll-over of partnership assetsFOI status: may be released
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This decision has been withdrawn.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a roll-over available under Subdivision 122-B of the Income Tax Assessment Act 1997 (ITAA 1997) on the disposal of shares held in joint names to a wholly owned company?
Decision
No. Where the assets disposed of are shares held in joint names, replacement asset roll-over under Subdivision 122-B of the Income Tax Assessment Act 1997 (ITAA 1997) will only be available if the shares disposed of are assets of a partnership business.
Facts
The taxpayer holds shares in Company A with their spouse. The issued capital of Company A is made up of ordinary shares.
The other shares of Company A are owned by an unrelated individual.
The taxpayer is considering the effects of a proposed restructure which would result in the taxpayer acquiring non-redeemable shares in Company B as consideration for the jointly owned shares in Company A.
The shares issued by Company B will represent 100% of the shares issued in the company and will be owned jointly in the same proportion as they currently hold shares (inter se) in Company A.
Reasons for Decision
Section 122-125 of the ITAA 1997 provides that all of the partners in the partnership must dispose of their interest in a CGT asset of the partnership or all the assets of a business carried on by the partnership, to the company.
An 'asset of the partnership' is an asset that is used by the partnership in carrying on a business of the partnership. Section 160ZZNA of the Income Tax Assessment Act 1936 (ITAA 1936) (corresponding to section 122-125 of the ITAA 1997) refers to a 'partnership asset'. When this section was introduced, there was some uncertainty whether it applied to a general law partnership or a partnership under tax law (as per the definition in section 995-1 of the ITAA 1997).
The Explanatory Memoranda (EM) for section 160ZZNA of the ITAA 1936 specifically provided:
'the assets transferred must be "partnership assets", that is, assets owned by the partners of a partnership and used in the course of the partnership's business' (emphasis added).
This suggests that despite the fact that taxpayers who receive income jointly may be regarded as a partnership for tax purposes, roll-over will not be available under section 160ZZNA of the ITAA 1936 because they are not 'in business'. As section 122-25 of the ITAA 1997 is the corresponding provision to section 160ZZNA of the ITAA 1936, roll-over of partnership assets under the ITAA 1997 will also be limited to assets which are used in the course of a partnership's business.
Therefore, roll-over will only be available if the taxpayer is carrying on business in partnership and the assets owned by those partners for which a roll-over is sought are used in the course of that partnership's business.
Date of decision: 15 August 2001Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
Section 108-7
Section 122-1
Section 122-15
Section 122-25
Section 122-125
Section 160ZZNA
Keywords
Capital gains tax
CGT rollover relief
ISSN: 1445-2782
| Date: | Version: | |
| 15 August 2001 | Original statement | |
| You are here | 8 January 2002 | Archived |