ATO Interpretative Decision

ATO ID 2004/576 (Withdrawn)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 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 eligible for the rollover relief provided by section 124-915 of the ITAA 1997 when the taxpayer's old licence is replaced with an AFS licence acquired by the taxpayer's company.

Facts

The taxpayer owned an old licence that was issued 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.

The FSR regime came into effect on 11 March 2002. The taxpayer has a two year transition period ending on 10 March 2004 to move to the FSR regime.

The taxpayer incorporated a company to conduct the same financial services business as was 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 old licence ceased to have effect when the AFS licence was granted to the taxpayer's 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 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.

the taxpayer holds one or more licences, registrations, approvals, authorities, etc (the old licence(s)) as a regulated principal under section 1430 of the Corporations Act 2001;

3.

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

4.

the old licence(s) 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 124-900(2) or subsection 124-900(3) of the ITAA 1997 are satisfied. In this case, subsection 124-900(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 124-900(3) of the ITAA 1997.

Where the conditions of section 124-900 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 old 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 the taxpayer applying the provisions of this subsection are:

•

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

•

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

•

if the original 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 old licence plus any amount the new owner 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 124-900 of the ITAA 1997, the taxpayer is eligible for the new owner old licence rollover.

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 124-900
   subsection 124-900(2)
   subsection 124-900(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 2004/577
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 roll-over
Financial services reform transition period
FSR original asset
FSR regime
FSR transition period
New owner roll-over
Old licence roll-over
Regulated principal

Business Line:  Losses and Capital Gains Tax Centre of Expertise

Date of publication:  16 July 2004

ISSN: 1445-2782