ATO Interpretative Decision

ATO ID 2003/254

Income Tax

Issue

Does CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) happen to the CGT assets of incorporated associations that amalgamate under the Associations Incorporation Act 1981 (Qld) (AIA (Qld))?

Decision

Yes. CGT event A1 in section 104-10 of the ITAA 1997 happens to the CGT assets of incorporated associations that amalgamate under the AIA (Qld) because there is a change of ownership of the assets from those associations to a new association.

Facts

Two related associations are incorporated associations under the AIA (Qld). The two associations amalgamate under Part 9, Division 2 of the AIA (Qld).

Relevant provisions of the AIA (Qld) include:

Part 9, Division 2 - Amalgamation of incorporated associations

Definitions for Division

79. In this division-

"new association" means an incorporated association that is incorporated because of an application to amalgamate made under this division by 2 or more old associations.

"old association" means an incorporated association that, with one or more other incorporated associations, applies under this division to form a new association.

Modified application of Act

84. The provisions of this Act providing for the incorporation of an association apply to the incorporation of a new association with all necessary changes, all changes made under this division and any changes prescribed under the regulations.

Certificate of incorporation

85.(1) On registration of a new association, the chief executive must issue the association with a certificate of incorporation.

(2)...............

Effect of incorporation

86. On the incorporation of a new association-

(a)

the assets and liabilities of the old associations become the assets and liabilities of the new association; and

(b)

the incorporation of the old associations is cancelled.

Duty to notify registrar of titles of land or interest in land etc.

87.(1) The secretary of a new association must ask the registrar of titles, or anyone else who is required to keep a register about dealings in property, (the "registering authority") to record in the appropriate register land or an interest in land gained by the new association because of its incorporation under this division.

(2). ..................

Amalgamation does not affect certain rights or obligations

88.(1) The amalgamation of old associations into a new association does not-

(a)

affect a right or obligation of the old associations or anyone else:

or

(b)

make legal proceedings by or against the old association defective

(2) ..................

Relevant provisions of the Duties Act 2001 (Qld) include:

Chapter 10, Part 4:

427 Exemption - particular instruments and transactions relating to incorporated associations

(1) Duty is not imposed on an instrument or transaction for a vesting of property in an incorporated association under the Associations Incorporation Act 1981, because of its incorporation under part 2 or part 9, division 2, of that Act.

Reasons for Decision

CGT event A1 in section 104-10 of the ITAA 1997 happens if there is a disposal of a CGT asset. There is a disposal of a CGT asset if a change of ownership occurs from one entity to another entity.

An amalgamation is the merging of two separate things to create a new thing (Butterworths Australian Legal Dictionary, 1997). The legislation under which the amalgamation is effected does not provide for the continuation of the same legal entity. Instead, the legislation refers to 'old associations' being associations that have applied to amalgamate and to a 'new association' being one that is formed under the amalgamation process.

The old associations are separate legal entities incorporated under the AIA (Qld) and the new association is also a separate legal entity. Paragraph 86(b) of the AIA (Qld) provides for the cancellation of the incorporation of the old associations and sections 84 and 85 of the AIA (Qld) provides for the incorporation of the new association.

Paragraph 86(a) of the AIA (Qld) provides that the assets and liabilities of the old associations become the assets and liabilities of the new association. In becoming assets of the new association there is a transfer of assets from the old associations to the new association. Subsection 87(1) of AIA (Qld) indicates a transfer of assets from the old associations to the new association in referring to land or an interest in land gained by the new association and requiring such acquisition to be recorded in the appropriate register of titles. Further indications of a transfer are contained in the stamp duties legislation which provides an express stamp duty exemption for the vesting of property in an incorporated association because of amalgamation under the AIA (Qld) (section 427 of the Duties Act 2001 (Qld)).

As the assets of the old associations have been transferred to a new entity (the new association) there is a change of ownership (that is, a disposal) of assets from the old associations to the new entity. CGT event A1 in section 104-10 of the ITAA 1997 therefore happens to the CGT assets of the old associations when they amalgamate.

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Division 50
   section 104-10

Related ATO Interpretative Decisions
ATO ID 2002/808
ATO ID 2004/798

Other References:
Butterworths Australian Legal Dictionary, 1997

Keywords
Capital gains tax
Capital gains
Association income
Non profit companies
Companies
Capital Gains Tax CoE
CGT event A1-disposal of a CGT asset

Siebel/TDMS Reference Number:  430853

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  24 April 2003

ISSN: 1445-2782