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Edited version of your private ruling
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Ruling
Subject: Dissolution of joint shareholding.
Questions and Answers:
If your joint shareholding is partitioned into individual shareholdings, will a capital gains tax (CGT) event occur?
Yes.
Does the Commissioner have discretion to overrule a CGT event?
No.
This ruling applies for the following period:
30 June 2012
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.
You are dairy farmer trading as a partnership and have a joint ownership of shares in company A. Your partnership is now being dissolved and you intend to partition your joint shareholding into individual lots.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 108-7
Reasons for decision
Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states a CGT asset is any kind of property or a legal or equitable right that is not property. Examples of CGT assets listed include land and buildings; shares in a company and units in a unit trust; options; debts owed to you; a right to enforce a contractual obligation; and foreign currency.
Section 108-7 of the ITAA 1997 states individuals who own a CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common.
Taxation Determination TD 92/148 is about the CGT implications where joint owners of a block of land subdivide that land into two smaller blocks with each owning one block.
TD 92/148 states as a result of the transaction whereby each now has sole ownership of an individual block, each owner is taken to have disposed of his or her 50% interest in the subdivided block which is now owned by the other.
Further, TD 92/148 states there have been corresponding acquisitions by each owner from the other of that interest in land now owned by each of them which was previously owned by the other.
In your case, the principle in TD 92/148 will apply to your joint shareholding because shares are CGT assets in the same way land is a CGT asset. It follows a disposal of a CGT asset (CGT event A1) will happen when you partition your joint shareholding in Company A into six individual lots.
The taxation legislation does not provide the Commissioner with a discretion to overrule the happening of a CGT event. It follows a disposal of a CGT asset (CGT event A1) will happen when you partition your joint shareholding in Company A into six individual lots.
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