ATO Interpretative Decision

ATO ID 2004/577 (Withdrawn)

Income Tax

• This ATO ID is a straight application of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer, an insurance multi-agent, entitled to rollover relief under section 124-915 of the Income Tax Assessment Act 1997 (ITAA 1997) when the taxpayer's qualified licence is replaced with an Australian financial services licence (AFS licence) acquired by the taxpayer's company when the taxpayer moved to the financial services reform (FSR) regime?

Decision

Yes. The taxpayer is entitled to the rollover relief provided by section 124-915 of the ITAA 1997 when the taxpayer's qualified licence is replaced with an AFS licence acquired by the taxpayer's company when the taxpayer moved to the FSR regime.

Facts

The taxpayer is an insurance intermediary who has agency agreements with more than one insurer. The taxpayer acquired a qualified licence under section 1434 of the Corporations Act 2001.

The FSR regime came into effect on 11 March 2002. The taxpayer has a two year transition period ending on 10 March 2004 in which to apply for a standard AFS licence.

The taxpayer incorporated a company to conduct the same financial services business as originally conducted. All the shares in the company were owned by the taxpayer. The company applied to the Australian Securities & Investments Commission (ASIC) for the AFS licence during the transition period. ASIC granted the AFS licence to the company.

The taxpayer's qualified licence was cancelled when the AFS licence was granted to the taxpayer's company. The taxpayer became an authorised representative of the company to provide financial services.

Reasons for Decision

CGT event C2, section 104-25 of the ITAA 1997, happened when the taxpayer's qualified licence was cancelled when the AFS licence was granted to the taxpayer's company during the transition period.

Section 124-905 of the ITAA 1997 sets out the conditions to be satisfied for a taxpayer to be entitled to the rollover relief:

1.

a new owner applies for an AFS licence during the FSR transition period;

2.

a taxpayer holds a qualified licence under section 1434 of the Corporations Act 2001;

3.

a new owner is granted an AFS licence as a result of the application;

4.

the qualified licence ceases to have effect, either wholly or partially, at the earlier of the date the AFS licence is granted to the new owner, or 10 March 2004;

5.

the further conditions under sub-section 124-905(2) or subsection 124-905(3) of the ITAA 1997 are satisfied. In this case, subsection 124-905(3) of the ITAA 1997 contains the relevant conditions that need to be satisfied:

•

the new owner is a company;

•

all of the membership interests in the company are owned by the original owner;

•

the new owner acquires the AFS licence; and

•

the original owner becomes an authorised representative, an employee, or a director of the new owner.

The taxpayer satisfies conditions 1 to 4. The taxpayer also satisfies condition 5 as the taxpayer and the company have met the requirements at subsection 124-905(3) of the ITAA 1997.

Where the conditions in section 124-905 of the ITAA 1997 are satisfied, the consequences in section 124-915 of the ITAA 1997 apply.

Subsection 124-915(1) of the ITAA 1997 provides that where:

•

the taxpayer's ownership of the original asset (the qualified licence) has come to an end; and

•

the new owner has acquired the replacement asset(s) (the AFS licence),

subsection 124-915(2) of the ITAA 1997 will apply. The outcomes for a taxpayer applying the provisions of this subsection are:

•

any capital gain or capital loss made from CGT event C2 happening to the qualified licence is disregarded; and

•

if the qualified licence was acquired before 20 September 1985, the AFS licence is taken to have been acquired before 20 September, 1985; or

•

if the qualified licence was acquired on or after 20 September 1985, the first element of the cost base of the AFS licence is the cost base of the related qualified licence plus any amount the taxpayer paid to get the AFS licence. The first element of the reduced cost base is worked out similarly.

As the taxpayer has satisfied the conditions at section 124-905 of the ITAA 1997, the taxpayer is eligible for the new owner qualified licence rollover relief.

Note: The company can be an existing company wholly owned by the taxpayer.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 104-25
   section 124-905
   subsection 124-905(2)
   subsection 124-905(3)
   section 124-915
   subsection 124-915(1)
   subsection 124-915(2)

Related ATO Interpretative Decisions
ATO ID 2004/573
ATO ID 2004/574
ATO ID 2004/575
ATO ID 2004/576
ATO ID 2004/578

Keywords
Australian financial services licence
Authorised representative
Capital gains tax
CGT assets
CGT events C1-C3 - end of a CGT asset
Financial services reform regime
Financial services reform transition period
FSR original asset
FSR regime
FSR replacement asset
FSR transition period
New owner roll-over
Qualified licence roll-over

Business Line:  Losses and Capital Gains Tax Centre of Expertise

Date of publication:  16 July 2004

ISSN: 1445-2782