Edited version of your written advice

Authorisation Number: 1012814253502

Ruling

Subject: CGT - shares and units - rollover

Question 1

Are you eligible to elect to rollover any capital gain made on disposal of your shares in A Pty Ltd (A) to B Pty Ltd (B)?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You own shares in A. You acquired these shares in 19XX (upon incorporation of the company).

You have transferred your shares in A to B.

The consideration for this transfer will be non-redeemable shares in B.

You are the sole shareholder in B.

You have stated that the market value of the shares you will receive in B should be the same as the market value of the A shares as B has no other assets or liabilities.

You and B are Australian residents for tax purposes.

B is not an exempt entity and its income is not exempt.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 Subdivision 122-A

Income Tax Assessment Act 1997 section 122-20

Income Tax Assessment Act 1997 Section 122-25

Reasons for decision

Capital gains tax (CGT) is the tax that you pay on certain gains you make. You may make a capital gain as a result of a CGT event, happening to an asset in which you have an ownership interest. The most common CGT event, CGT event A1, occurs when you dispose of your ownership interest in a CGT asset to another entity.

You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)).

CGT event A1 and includes disposals of shares by an individual to a wholly owned company. However, replacement asset roll-over relief is available under Subdivision 122-A of the ITAA 1997, to an individual who disposes of a CGT asset, or all the assets of a business, to a company in which the individual owns all the shares.

However, there are a number of conditions in sections 122-20 and 122-25 of the ITAA 1997 which must be met before roll-over relief is available, which are as follows: 

1. Under section 122-15 of the ITAA 1997, a 'trigger event' must happen, involving the individual and a company. In the case of a CGT event A1, the trigger must be the disposal of a CGT asset to a company. A CGT asset is any kind of property acquired after 19 September 1985, including shares in a company.

In your case, when you dispose of your shares in A (acquired after 1985) to your wholly-owned company, B event A1 will happen to your A shares, and therefore, this condition will be satisfied.

2. 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 B as consideration for the transfer of your shares in A. Accordingly, condition 2 will be satisfied.

3. 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, you have stated that the market value of the shares you received for the event should be the same as the market value of the shares transferred, given that B will have no other assets or liabilities. Therefore, you will comply with this condition.

4. 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 B, in the same capacity as you owned the assets prior to the transfer, and so this condition will be met.

5. Under section 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 A are not assets of a type listed in the table, so this condition will be satisfied.

6. 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 B will be residents of Australia for taxation purposes, and so this condition will be been satisfied.

7. 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, B 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 you're A shares to B.

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