ATO Interpretative Decision

ATO ID 2004/678 (Withdrawn)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, a financial service provider, eligible for rollover relief under section 124-915 of the Income Tax Assessment Act 1997 (ITAA 1997) when the taxpayer's old licence is replaced with the Australian financial services licence (AFS licence) acquired by a company in which the taxpayer and their spouse owned the shares?

Decision

No. The taxpayer is not eligible for the rollover relief provided by section 124-915 of the ITAA 1997 when the taxpayer's old licence is replaced with the AFS licence acquired by a company as the company was not wholly owned by the original owner.

Facts

The taxpayer owned an old licence acquired under the relevant law in force before the commencement of the Financial Services Reform Act 2001. Subsequently, the taxpayer became a regulated principal under section 1430 of the Corporations Act 2001.

In moving to the financial services reform regime, the taxpayer incorporated a company to conduct the same financial services business that the taxpayer originally conducted. The shares in the company were owned by the taxpayer and their spouse. 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 old licence ceased to have effect when the AFS licence was granted to the company. The AFS licence acquired by the company covered all of the activities that were authorised by the old licence. 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 old licence ceased to have effect when the AFS licence was granted to the taxpayer's company.

Section 124-900 of the ITAA 1997 specifies the conditions to be satisfied for a taxpayer to be entitled to the rollover relief. Subsection 124-900(3) of the ITAA 1997 applies where the new owner is a company or a trust.

Subparagraph 124-900(3)(a)(iii) of the ITAA 1997 requires that all of the membership interests in the new owner are owned by the original owner. This means that where the new owner is a company, it must be wholly owned by the original owner.

The taxpayer and their spouse own all of the shares in the company. As the shares are not wholly owned by the original owner, the condition at subparagraph 124-900(3)(a)(iii) of the ITAA 1997 is not satisfied. Therefore, the taxpayer will not be eligible for the rollover relief under section 124-915 of the ITAA 1997.

Note 1: Where the new owner of an AFS licence is a company, both the original owner and the company will not qualify for the new owner rollover relief where the company is not wholly owned, under any of the following subparagraphs of the ITAA 1997:

•

subparagraph 124-900(3)(a)(iii), old licence rollover

•

subparagraph 124-905(3)(a)(iii), qualified licence rollover, or

•

subparagraph 124-910(3)(a)(iii), rights rollover.

Note 2: This application of the law remains the same where the taxpayer and any other person own all of the shares in the company.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 104-25
   section 124-900
   subsection 124-900(3)
   subparagraph 124-900(3)(a)(iii)
   subparagraph 124-905(3)(a)(iii)
   subparagraph 124-910(3)(a)(iii)
   section 124-915

Related ATO Interpretative Decisions
ATO ID 2004/576
ATO ID 2004/577
ATO ID 2004/578

Keywords
Australian financial services licence
Authorised representative
Capital gains tax
CGT events C1-C3 - end of a CGT asset
Companies
Financial services reform regime
Financial services reform roll-over
FSR original asset
FSR regime
New owner roll-over
Old licence roll-over
Qualified licence roll-over
Regulated principal
Rights roll-over
Wholly owned

Business Line:  Losses and Capital Gains Tax Centre of Expertise

Date of publication:  13 August 2004

ISSN: 1445-2782