Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051463100379

Date of advice: 19 December 2018

Ruling

Subject: CGT event C1 – involuntary loss of shares – replacement asset

This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number of 1051430499616.

Question 1

Has capital gains tax (CGT) event C1 happened on the disposal of the shares?

Answer

Yes. The sale of shares occurred without your consent and as a result the shares were involuntarily disposed of. Further information can be found by searching quick code (QC) 17204 on ato.gov.au.

Question 2

Can you apply the CGT roll-over contained in Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) to the capital gain resulting from the sale of the shares?

Answer

Yes. You meet the requirements to choose a roll-over to be deferred against the capital gain. Further information can be found by searching QC 22164 on ato.gov.au.

This ruling applies for the following period:

Year ended 30 June 2018

Year ending 30 June 2019

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You have reached your preservation age and retired from the work force.

Your advisors had discussions with you about strategies to establish you in retirement.

The strategy was presented to you and you signed the relevant form to reflect your understanding and your clear and precise instructions that was to be undertaken by your investor.

In the commencement of the new financial year, the strategies were to take effect.

Your investor was to sell some of your investments and retain others.

Your investor incorrectly sold the wrong investments. This resulted in a significant capital gain.

Once the error was identified, your investor attempted to rectify the situation to no avail.

The original investments have not been replaced and you have not received compensation.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-20

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 124-75

Income Tax Assessment Act 1997 section 124-85

Reasons for decision

CGT event C1

CGT event C1 happens if a CGT asset you own is lost or destroyed (subsection 104-20(1) of the ITAA 1997).

Taxation Determination TD 1999/79 paragraph 1 says the words ‘lost’ or ‘destroyed’ are not defined in the Act and take their ordinary meaning. Paragraph 4 also says the word ‘destroyed’ contemplates both voluntary and involuntary actions. The word in its context in CGT event C1 applies if the asset is destroyed in an involuntary occurrence, or if it happens by the actions of others over which the taxpayer has no control.

CGT event A1 also happened on the sale of the original shares to a third party. Under subsection 102-25(1) of the ITAA 1997, if more than one CGT event happens, you use the one that is most specific to your situation and the most specific event is CGT event C1.

In your case, your shares were erroneously sold without your consent. The error was identified before the transaction was completed, but due to circumstances outside of your control the situation could not be rectified.

CGT event C1 has occurred in this situation as the shares were lost due to an involuntary occurrence.

Roll-over relief

Division 124 of the ITAA 1997 allows for a replacement asset roll-over to defer the making of a capital gain or loss from a CGT event happening until a later CGT event in certain circumstances.

You can choose a roll-over where:

Section 124-85 of the ITAA 1997 sets out the consequences if you choose to obtain a roll-over where you have received money as compensation, if you make a capital gain from the event and the original asset was acquired on or after 20 September 1985.

In your situation, you meet the requirements to choose a roll-over to be applied to the capital gain resulting from the erroneous sale of the original shares. The original shares were involuntarily sold on 20XX.

If you acquire a replacement asset in the following year you are entitled to roll-over the capital gain from the disposal of the shares under Subdivision 124-B of the ITAA 1997.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).