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Edited version of private ruling
Authorisation Number: 1011649519516
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Ruling
Subject: Treatment of capital proceeds from disposal of shares
Is an amount, or any part thereof, received in respect of the disposal of shares considered to be a capital gain where the amount received on disposal is equal to the cost of those shares?
No.
This ruling applies for the following period:
1 July 2010 to 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
A couple were farmers for many years. For a number of years they supplied a dairy co-operative. During that time, they were required to purchase one dollar shares as equity in proportion to their production.
When they sold their farm they retained the shares. The shares were transferred to the family trust. Dividends have been received each year and the income declared in income tax returns. No deductions have ever been claimed in respect of the cost of acquiring the shares.
The trust has made arrangements to sell the shares to the co-operative. It will receive the amount which the shares cost to acquire.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 108-5.
Does Part IVA apply to this ruling?
Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.
We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.
For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.
Reasons for decision
Unless otherwise stated, all legislative references in the following Reasons for Decision relate to the Income Tax Assessment Act 1997.
Detailed reasoning
Shares are classified as capital gains tax (CGT) assets as a consequence of the operation of section 108-5. As a general rule, if you have acquired shares on or after 20 September 1985, you may have to pay tax on any capital gain that you make when a CGT event happens to them. Selling or otherwise disposing of the shares would generally be the relevant event.
When you dispose of shares, you are liable to pay tax on any capital gain which you make as a result of the disposal. Generally, the capital gain is the difference between the capital proceeds from the event and the cost base of the CGT asset.
In the present case, the capital proceeds from the sale of the shares in M-G are exactly offset by the cost of the shares. As a consequence there will not be a capital gain resulting from the event.
Even though there is no assessable capital gain, the CGT question in the trust's tax return should nevertheless be completed showing the appropriate details. The consideration received on disposal of the shares should be included in the asset statement associated with the relevant return.
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