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Edited version of your private ruling
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Ruling
Subject: CGT event
Question 1:
Is the transfer of the shares into your child's name a CGT event?
Answer:
No
Question 2:
Will you be assessed on a capital gain or loss upon transfer of the shares?
Answer:
No
This ruling applies for the following period
Period ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts and circumstances
Your child had savings accumulated from birthday gifts.
You used your child's savings to purchase shares after 20 September 1985.
You purchased the shares in your name with your child's savings.
You purchased the shares in your name as there was no provision for your child to purchase them in their name.
Your dividends were paid into a dividend reinvestment plan.
Your child after the age of 18 had use of the shares but did not act upon it.
In the financial year ended 30 June 2011, as part of your marriage settlement process, it was identified by both you and your former spouse that the shares did not belong to you and were the rightful property of your child.
In the financial year ended 30 June 2011, you transferred the shares to your child.
Relevant legislative provisions
Income Tax Assessment Act 1997
104-5
104-10
Reasons for decision
Capital gain or capital loss
You make a capital gain or capital loss if a CGT event happens.
The most common CGT event is CGT event A1. CGT event A1 happens if you dispose of a CGT asset [Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)]
You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.
Beneficial ownership
The term beneficial owner is not defined in the Act. The Commissioner of Taxation considers the question of who should pay tax on the earnings of accounts referred to as children's saving accounts in Taxation Ruling IT 2486.
Regardless of the name and type of account, the Commissioner takes the view to parents managing children's money as 'Whose money is it?' IT 2486 states that:
· If the money really belongs to the parent, in the sense that the parent provided the money and may spend it as he or she likes, then the parent should include the amount in his or her return.
As a general rule, where the Taxation Office is satisfied that the money in the account really belongs to the child, it will not insist on a strict application of trust provisions.
When considering the facts of your case, the original amount used to purchase the shares was an amount accumulated in your child's bank account from birthday presents gifted to your child. Consequently you purchased shares in your name for the intended use and benefit by your child.
You have indicated that the shares and their corresponding value were available for the use of your child after the age of 18, but it was not acted upon.
Whilst undergoing a marital separation, both you and your former spouse identified that the shares held in your name were rightfully the possession of your child, therefore, you transferred the shares into your child's name.
Considering the facts; the money used to purchase the shares was from your child's rightful savings. The child had control of the shares from age 18 onwards. Your marital separation identified the shares were neither the assets of you or your former spouse. This is enough satisfy the Commissioner that your child is the original and beneficial owner of the shares.
CGT event
You dispose of a CGT asset if a change of ownership occurs from you to another entity.
However, a change of ownership does not occur if you maintain beneficial ownership (Section 104-10 of the ITAA 1997), therefore, there is no CGT event on the transfer of your shares to your child as your child is the original beneficial owner
Consequently, your child maintains the original cost base of the shares as if they were purchased in their own name.
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