Edited version of private advice

Authorisation Number: 1052235139276

Date of advice: 22 April 2024

Ruling

Subject: Capital gains tax

Question 1

Will there be a CGT event in relation to the 50% interest in the XX shares that you continue to own after the transfer into joint holding?

Answer

No.

Question 2

Will there be a CGT event in relation to the 50% interest in the XX shares that your spouse owns after the transfer into joint holdings?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commenced on:

X XX 20XX

Relevant facts and circumstances

You purchased XX XX shares between XX 20XX to XX 20XX.

The cost base of your XX shares is $XX

You transferred the above shares into your joint holding with your spouse on X XX 20XX.

The transfer was done by your stockbroker.

The transfer was at $XX per share (closing value) being $XX.

Relevant legislative provisions

Income tax Assessment Act 1997 section 104-10

Income tax Assessment Act 1997 section 106-5

Income tax Assessment Act 1997 section 108-7

IssueCapital Gains Tax

Question 1

Summary

There has not been a CGT event happen in relation to the 50% interest in the XX shares that you continue to own after the transfer into joint holding.

Detailed reasoning

Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) Disposal of a CGT asset: CGT event A1 explains a CGT event A1 only happens if you dispose of a CGT asset. 'Disposal' is defined for CGT purposes to mean only those situations where there is a change of ownership of the asset from you to another entity. Disposal can refer to part of a larger asset such as an interest in it.

Sections 108-7 ITAA 1997 - Interest in CGT assets as joint tenants

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.

Under section 106-5 ITAA 1997 - Partnerships conveys any capital gain or capital loss from a CGT event happening in relation to a partnership or one of its CGT assets is made by the partners individually.

The change of ownership has happened to 50% of your interest. The Australia Taxation Office looks beyond the mere issue of a new statement of ownership or certificate of title when searching for a change of ownership.

Application to your circumstances

Before the transfer, you owned 100% of the XX XX shares. After the transfer, you continue to own a 50% interest in each of the XX XX shares. Therefore, to the 50% shares you keep a CGT event A1 did not happen. You can only make a capital gain or loss if a CGT event happens.

There has been no change of ownership as required by ITAA 1997 subsection 104-10(2) from you to another entity in respect to the 50% interest that you continue to own.

From your perspective, the 50% interest in the XX XX shares continues to have the same acquisition dates that they originally had. The cost base will be 50% of the original cost base.

Question 2

Summary

A CGT event has occurred in relation to the 50% interest in the XX shares that your spouse owns after the transfer into joint holdings?

Detailed reasoning

Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) Disposal of a CGT asset: CGT event A1 explains a CGT event A1 only happens if you dispose of a CGT asset. 'Disposal' is defined for CGT purposes to mean only those situations where there is a change of ownership of the asset from you to another entity. Disposal can refer to part of a larger asset such as an interest in it.

Application to your circumstances

Before the transfer, you owned 100% of these XX XX shares. After the transfer, you ceased to own 50% interest in each of these XX XX shares that is now owned by your spouse.

There is a change of ownership to the 50% interests in each of those shares that are now owned by your spouse and therefore CGT event A1 has happened to these 50% interests in them.

There will be two different cost bases. You will keep your original cost base for the 50% of the XX shares you retained and for the 50% interest in the XX shares that were transferred in the joint holding, Your spouse receives a new cost base linked to the market value as at the transfer date. This market value is also the capital proceeds for the sale of your 50% interest in those shares.

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).