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Edited version of your written advice
Authorisation Number: 1012727427289
Ruling
Subject: CGT rollover relief
Question
Are you eligible to elect to rollover any capital gain made on disposal of your shares in XXX Pty Ltd (XXX) to an as yet unnamed and unincorporated company to be created by you?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You have owned a % of the total number of issued shares in XXX since a date after 19 September 1985 (one ordinary share). You are an Australian resident, over 55 and currently undertaking retirement and estate planning. You wish to separate your investments due to estate and family needs.
To achieve this you intend to interpose a new private company between you and XXX. The new private company will be an Australian resident for tax purposes and not a tax exempt entity. The new private company will not hold any other assets or liabilities at the time of acquiring the XXX shares. You will exchange your one ordinary share in XXX for one ordinary share in the new private company. You will own 100% of the issued shares in the new private company.
The market value of the share you receive in the new company will be substantially the same as the market value of the XXX share transferred.
A significant portion of retained profits in XXX will be paid by way of fully franked dividend to the new private company. After the restructure XXX intends to pay franked distributions to all of its ordinary shareholders. Eventually XXX will be wound up but this may take some years.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 122-15
Income Tax Assessment Act 1997 section 122-20
Income Tax Assessment Act 1997 Section 122-25
Reasons for decision
A taxpayer makes a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset.
Shares acquired on or after 20 September 1985 are considered to be CGT assets.
The disposal of a CGT asset is a CGT event A1.
Replacement asset roll-over relief is available under section 122-15 of the Income Tax Assessment Act 1997 (ITAA 1997), to an individual if one of the CGT events ('the trigger event') specified in the table to section 122-15 happens, subject to the conditions specified in sections 122-20 and 122-25.
CGT event A1 from the disposal of a CGT asset to a company is one of the trigger events listed in the table to section 122-15 of the ITAA 1997. Therefore you can choose to obtain roll-over on the disposal of your shares in XXX Pty Ltd to a new company, subject to the conditions set out in sections 122-20 and 122-35.
1. In the case of shares being the consideration you receive for the trigger event happening, under paragraph 122-20(1)(a) and subsection 122-20(2) of the ITAA 1997, the shares must be non-redeemable and in the company.
In your case, you will receive only non-redeemable shares in the new private company as consideration for the transfer of your shares in XXX. Accordingly, condition 1 will be satisfied.
2. Under subsection 122-20(3) of the ITAA 1997, the market value of the shares that you will receive for the trigger event happening must be substantially the same as the asset disposed.
In your case, the market value of the shares you received for the event will equal the market value of the shares transferred. Therefore, you will comply with this condition.
3. Under subsection 122-25(1) of the ITAA 1997, you must own all the shares in the company immediately after the time of the trigger event and in the same capacity as you owned the assets that the company comes to own.
In your case, you will own all the shares in the new private company, in the same capacity as you owned the assets prior to the transfer, and so this condition will be met.
4. Under subsection 122-25(2) of the ITAA 1997, it is stated that the Subdivision does not apply to disposal of assets listed in the table included under the subsection (collectables, personal use assets, precluded assets, trading stock, assets that become registered emissions units).
In your case, the shares in the new private company are not assets of a type listed in the table in subsection 122-25(2), so this condition will be satisfied.
5. Also under subsection 122-25(6) and subsection 122-25(7) of the ITAA 1997, if you or the company, or both, are not a resident then each asset must be taxable Australian property at the time of the trigger event.
In your case, you and the new private company will be residents of Australia for taxation purposes, and so this condition will be satisfied.
6. Under subsection 122-25(5) of the ITAA 1997, the company must not be exempt from income tax on its ordinary and statutory income because it is an exempt entity for the income year of the trigger event.
In your case, the new private company is not an exempt entity and its income will not be exempt, and so this condition will be met.
As all conditions have been complied with, you will be able to choose the replacement asset roll-over relief available under Subdivision 122-A of the ITAA 1997 on the disposal of your XXX shares to the new private company.
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