ATO Interpretative Decision
ATO ID 2004/94
Income TaxCapital gains tax: Subdivision 122-A rollover: no consideration received
FOI status: may be released
Please note: This ATO ID was withdrawn on 23 February 2018. This was in error and was corrected on 26 April 2018 and this ATO ID has been current since its releaseThis document has changed over time. View its history.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Can a taxpayer choose rollover under Subdivision 122-A of the Income Tax Assessment Act 1997 (ITAA 1997) if they dispose of an asset to a company in which they own all of the issued shares and are not issued with any new shares or paid any other form of consideration by the company?
Yes. Section 122-20 of the ITAA 1997 does not require that a taxpayer must receive consideration for the disposal of an asset to a company in order to obtain the rollover. Rather, it provides that if there is consideration received for the disposal, then that consideration must be either non-redeemable shares in the company or non-redeemable shares in the company and the company's undertaking to discharge one or more liabilities in respect of the asset.
The shares in a resident company are all owned by the taxpayer (the trustee of a resident trust for capital gains tax (CGT) purposes). None of the shares is a redeemable share.
The company is not an exempt entity.
The company's only asset is less than ten dollars in cash.
The taxpayer subsequently disposed of land to the company.
No shares were issued by the company as consideration for the transfer of the land.
No other consideration was paid by the company.
Reasons for Decision
Section 122-15 of the ITAA 1997 provides that where a trustee disposes of an asset, or all of the assets of a business, to a company the trustee can choose to obtain rollover if certain requirements are met.
One of the requirements is that if the trustee receives consideration for the disposal of the asset (or assets) to the company that consideration must include shares in the company (subsection 122-20(1) of the ITAA 1997).
Although subsection 122-20(1) of the ITAA 1997 contemplates that ordinarily a transferee company will issue shares in respect of any assets transferred to it, the provision does not specifically require that consideration must be provided in respect of the transfer. Rather, the requirement is that where consideration is given by the company, it must be either shares in the company or shares in the company and the company undertaking to discharge one or more liabilities in respect of the asset or the assets of the business.
As the taxpayer has received no consideration in respect of the disposal, there is no need to consider the application of section 122-20 of the ITAA 1997.
Section 122-25 of the ITAA 1997 contains further conditions that must be satisfied before rollover can be chosen. Relevantly these are:
- the transferor must own all of the shares in the company just after the disposal of the asset (subsection 122-25(1) of the ITAA 1997) - that requirement is satisfied in this case because the taxpayer owns all of the shares in the company
- the company must not be an exempt entity (subsection 122-25(5) of the ITAA 1997) - that requirement is satisfied in this case, and
- if the trust is not a resident trust for CGT purposes or the company is not an Australian resident, the asset must be taxable Australian property (subsection 122-25(7) of the ITAA 1997) - that requirement is satisfied in this case as both entities are Australian resident entities.
Therefore, the taxpayer is entitled to choose rollover under Subdivision 122-A of the ITAA 1997. If rollover is chosen any capital gain or capital loss made by the taxpayer as a result of the disposal is disregarded (subsection 122-40(1) of the ITAA 1997).
Subsections 122-40(2) and 122-40(3) of the ITAA 1997 provide rules for determining the first element of cost base and reduced cost base of each share received as consideration for the disposal of the asset and the pre-CGT status of those shares.
In this case, the rules in subsections 122-40(2) and 122-40(3) of the ITAA 1997 will not apply in relation to the taxpayer's existing shares as those rules only apply to shares received as consideration for the disposal of the asset.Date of decision: 13 January 2004
Year of income: Year ended 30 June 2003
Income Tax Assessment Act 1997
ATO ID 2004/95
ATO ID 2002/172
ATO ID 2002/361
ATO ID 2004/8
Capital gains tax
CGT event A1-disposal of a CGT asset
CGT replacement assets
CGT replacement asset roll-over
CGT roll-over relief