ATO Interpretative Decision
ATO ID 2004/95 (Withdrawn)
Income Tax
Capital gains tax: Subdivision 122-A rollover: shares transferred from current shareholdersFOI status: may be released
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This ATO ID is withdrawn as it is a straight application of the law and does not contain an interpretative decision.This document has changed over time.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Issue
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 and the current shareholders of the company transfer all their shares to the taxpayer as consideration for the disposal?
Decision
Yes. Section 122-20 of the ITAA 1997 provides that any consideration received for the disposal must include shares in the company. It does not require the shares to have been issued by the transferee company. Therefore, the rollover condition is satisfied if the shares are transferred to the taxpayer from the company's existing shareholders.
Facts
The shares in a resident company were owned by four individuals. 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 (the trustee of a resident trust for capital gains tax (CGT) purposes) subsequently disposed of land to the company.
The land was acquired after 19 September 1985.
No shares were issued by the company as consideration for the transfer.
Instead, the company met its obligation to provide consideration for the transfer by arranging for the existing shareholders to transfer all their shares in the company to the taxpayer.
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 shares be issued. 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's undertaking to discharge one or more liabilities in respect of the asset or the assets of the business.
As the taxpayer has received only shares in the company, the requirements of subsection 122-20(1) of the ITAA 1997 are met. The other requirements in the section are also met because the shares are not redeemable (subsection 122-20(2) of the ITAA 1997) and their market value is substantially the same as the value of the land (subsection 122-20(3) 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:
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- 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 now owns all of the shares in the company
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- the company must not be an exempt entity (subsection 122-25(5) of the ITAA 1997) - that requirement is satisfied in this case, and
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- if the trust is not a resident trust for CGT purposes or the company is not an Australian resident, the asset must have the necessary connection with Australia (subsection 122-25(7) of the ITAA 1997) - that requirement is satisfied in this case as both entities are Australian residents.
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 trustee as a result of the disposal is disregarded (subsection 122-40(1) of the ITAA 1997). The first element of cost base of each share received by the trustee is the cost base of the land divided by the number of shares (subsection 122-40(2) of the ITAA 1997). The first element of reduced cost base of each share is worked out in the same way except the reduced cost base of the land is used.
Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Subdivision 122-A
section 122-15
section 122-20
subsection 122-20(1)
subsection 122-20(2)
subsection 122-20(3)
section 122-25
subsection 122-25(1)
subsection 122-25(5)
subsection 122-25(7)
subsection 122-40(1)
subsection 122-40(2)
ATO ID 2004/94
ATO ID 2002/172
ATO ID 2002/361
ATO ID 2004/8
Keywords
Capital gains tax
CGT assets
CGT event A1-disposal of a CGT asset
CGT replacement asset roll-over
CGT replacement assets
CGT roll-over relief
ISSN: 1445-2782
| Date: | Version: | |
| 13 January 2003 | Original statement | |
| You are here | 15 January 2010 | Archived |