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Edited version of your private ruling
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Ruling
Subject: Capital proceeds from CGT event
Question
Should the market value of the units received for the sale of the capital gains tax (CGT) asset be included in the capital proceeds for the sale under subsection 116-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
This ruling applies for the following periods:
1 July 2007 - 30 June 2008
The scheme commences on:
1 July 2007
Relevant facts and circumstances
You as trustee for a unit trust, disposed of its interest in a business. A combination of cash and units in the acquirer group were received for the sale.
The units in the acquirer group were issued at $X by the business. The units were subject to considerable restrictions, including the inability of the unit holder to dispose of the units within at least a five year period.
In addition, the trustee of the acquirer group had the ability to redeem the units at any time for such consideration which, in the absolute discretion of the trustee, represented the fair value of the units. A few years after receiving the special class units, the units were redeemed for nil consideration.
The capital proceeds calculated in accordance with Division 116 included the issue price of the units.
You have not requested the Commissioner to rule on the market value of the units.
As such, in providing this ruling the Commissioner forms no opinion on the market value of the units as at the time of the CGT event.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 116-20
Does Part IVA apply to this ruling?
Part IVA of the Income Tax Assessment Act 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 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
The legislative references referred to herein are from the ITAA 1997, unless otherwise stated.
On 21 September 2007, you disposed of your interest in the business which caused a CGT event A1 under section 104-10 to occur.
Section 116-20 sets out the general rules about capital proceeds from a CGT event.
Subsection 116-20(1) states:
'The capital proceeds from a CGT event are the total of:
(a) the money you have received, or are entitled to receive, in respect of the event happening; and
(b) the market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event).'
Upon disposal of your interest in the business, amongst other things you received the units in question. As such, under subsection 116-20(1) your capital proceeds will include the market value of the units at the time of the CGT event.
You have not requested the Commissioner to rule on the market value of the units.
As such, in providing this ruling the Commissioner forms no opinion on the market value of the units as at the time of the CGT event.
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