Edited version of private advice

Authorisation Number: 1052400761466

Date of advice: 6 June 2025

Ruling

Subject: CGT - disposal of shares

Question

Is the Taxpayer eligible to choose to obtain a roll-over under Subdivision 122-A of the Income Tax Assessment Act 1997 (ITAA 1997) on the proposed transfer of shares in Company A to New Company Pty Ltd ('New Co') and thus disregard any capital gain realised on the disposal of those shares in accordance with subsection 122-40(1)?

Answer

Yes.

This ruling applies for the following period:

DD/MM/YYYY to DD/MM/YYYY

The scheme commences on:

DD/MM/YYYY

Relevant facts and circumstances

1.  The Taxpayer is an individual who owns 50% of the shares in Company A.

2.  The Taxpayer holds the shares on capital account and they are not held as trading stock. They are used to generate assessable income and not a personal use asset or a collectable.

3.  The Taxpayer intends to incorporate a new private company ('New Co') in which the Taxpayer will be the sole founding shareholder. The Taxpayer will then dispose of the shares in Company A to New Co in return for additional ordinary shares in New Co.

4.  After these additional shares are issues, the Taxpayer will own all of the shares in New Co.

5.  New Co will hold Company A shares on capital account and the shares will not be trading stock of New Co.

6.  The Taxpayer is, and New Co will once incorporated be, a resident of Australia for Australian income tax purposes.

7.  Once incorporated New Co will not be an 'exempt entity' as that term is defined in subsection 995-1(1) of the ITAA 1997.

8.  New Co will not be undertaking to discharge a liability in respect of the Company A shares on behalf of the Taxpayer in respect of the disposal of the Taxpayer's Company A shares to New Co.

9.  There are no further steps planned or in contemplation for this arrangement.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 70-10

Income Tax Assessment Act 1997 Subdivision 122-A

Income Tax Assessment Act 1997 section 122-15

Income Tax Assessment Act 1997 section 122-20

Income Tax Assessment Act 1997 section 122-25

Income Tax Assessment Act 1997 section 122-35

Income Tax Assessment Act 1997 section 122-40(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision

Detailed reasoning

1.  Section 122-15 states:

If you are an individual or a trustee, you can choose to obtain a roll-over if one of the *CGT events (the trigger event) specified in this table happens involving you and a company in the circumstances set out in sections 122-20 to 122-35.

Table 1: Relevant CGT events

2.  The Taxpayer is an individual and intends to dispose of their shares in the Company A to New Co, a new private company that the Taxpayer intends to incorporate in the income year ending DD/MM/YYYY, in exchange for shares in New Co.

3.  CGT event A1 in section 104-10 happens when the Taxpayer disposes of his shares in the Company A. CGT event A1 is listed in the table and, if the conditions in sections 122-20 to 122-35 are satisfied, the Taxpayer will be able to choose to obtain roll-over relief under Subdivision 122-A.

Section 122-20 - What you receive for the trigger event

4.  Subsection 122-20(1) states:

The consideration you receive for the trigger event happening must be only:

(a)      *shares in the company; or

(b)      for a *disposal of a *CGT asset, or all the assets of a business, to the company (a disposal case) - shares in the company and the company undertaking to discharge one or more liabilities in respect of the asset or assets of the *business (as appropriate).

Note: There are rules for working out what are the liabilities in respect of an asset: see section 122-37.

5.  The Taxpayer will only receive ordinary shares in New Co for transferring their shares in Company A to New Co, and New co will not be undertaking to discharge any liabilities of Company A shares on behalf of the Taxpayer in respect of the disposal. Therefore, the condition in paragraph 122-20(1)(a) will be satisfied.

6.  Subsection 122-20(2) states:

The *shares received cannot be *redeemable shares.

7.  The term 'redeemable shares' is defined in subsection 995-1(1) as:

(a)      *shares that are liable to be redeemed; or

(b)      shares that, at the option of the company that issued them, are liable to be redeemed.

8.  The shares New Co will issue to the Taxpayer will be ordinary shares and therefore the condition in subsection 122-20(2) will be satisfied.

9.  Subsection 122-20(3) states:

The *market value of the *shares you receive for the trigger event happening must be substantially the same as:

(a)      for a disposal case - the market value of the asset or assets you disposed of, less any liabilities the company undertakes to discharge in respect of the asset or assets (as appropriate); or

(b)      for another trigger event (a creation case) - the market value of the CGT asset created in the company (the created asset).

10.  As the Taxpayer will 'dispose' of their shares in Company A to New Co, the relevant provision is paragraph 122-20(3)(a).

11.  Being a disposal case, the market value of the shares the Taxpayer receives in New Co for the trigger event happening must be substantially the same as the market value of the asset the Taxpayer disposed of, less any liabilities the company undertakes to discharge in respect of the asset.

12.  The Taxpayer has made the assumption that the market value of the shares that they will receive in New Co for the Company A shares will be substantially the same as the market value of the shares disposed of New Co, and states that New Co has not made any undertaking to discharge any liabilities in respect of the shares in Company A.

13.  Therefore, it is accepted that the market value of the shares the Taxpayer will transfer from Company A to New Co will be substantially the same as the market value of the shares New Co will issue to the Taxpayer.

14.  All the relevant conditions in section 122-20 will therefore be satisfied in respect of the Taxpayer's disposal of their shares in Company A to New Co.

Section 122-25 - Other requirements to be satisfied

15.  Subsection 122-25(1) states:

You must own all the *shares in the company just after the time of the trigger event.

Note: You must own the shares in the same capacity as you owned or created the assets that the company now owns.

16.  On the incorporation of New Co, the Taxpayer will be the be the sole founding shareholder and will own all the shares in New Co.

17.  After the incorporation of New Co, the Taxpayer will dispose of all of their shares in Company A to New Co in return for additional ordinary shares in New Co, and the Taxpayer will remain as the sole owner of all of the shares in New Co.

18.  After the disposal the Taxpayer will also own the shares in New Co in the same capacity, i.e. as an individual, as they owned the shares in the Company A.

19.  Thus, the condition in subsection 122-25(1) will be satisfied.

20.  Subsection 122-25(2) provides that Subdivision 122-A does not apply to the disposal of any of the assets specified under the table in that subsection. Item 1 of the table relates to situations where a GCT asset is disposed of to a company. Under item 1 of the table, it is specified that a Subdivision 122-A roll-over does not apply to collectibles, personal use assets, a decoration award for valour or brave conduct, a precluded asset, an asset that becomes trading stock of the company, or an asset that becomes a registered emissions unit held by the company.

21.  As the Taxpayer is disposing of his shares in Company A (being 50% of the shares in Company A - CGT assets) to New Co (a company), item 1 of the table in subsection 122-25(2) is the relevant item in respect of the proposed disposal. The Company A shares that the Taxpayer proposes to dispose to New Co are not a CGT asset of a type described in item 1 of the table. Therefore, subsection 122-25(2) will be satisfied.

22.  Subsection 122-25(5) provides:

The *ordinary income and *statutory income of the company must not be exempt from tax because it is an *exempt entity for the income year of the trigger event.

23.  Once incorporated, New Co will not be an 'exempt entity' as defined under subsection 995-1(1), and therefore the ordinary and statutory income of New Co will not be exempt from income tax because it is an exempt entity for the year of the trigger event. Therefore, subsection 122-25(5) will be satisfied.

24.  Subsection 122-25(6) provides:

If you are an individual at the time of the trigger event, either:

(a) You and the company must both be Australian residents at that time; or

...

25.  The Taxpayer is an individual, and at the time of the trigger event both the Taxpayer and Company A will both be Australian residents. Therefore, the requirements of subsection 125(6) will be satisfied.

26.  Therefore, all the relevant conditions in section 122-25 will be satisfied in respect of the Individual's disposal of their shares in Company A to New Co.

Section 122-35 - What if the company undertakes to discharge a liability (disposal case)

27.  New Co is not proposing to undertake to discharge any liabilities in respect of the disposal of the Company A shares to New Co. Therefore, section 122-35 has no application

Conclusion

28.  As the requirements of sections 122-15, 122-20, 122-25 and 122-35 are satisfied, the Taxpayer may choose to obtain roll-over relief under Subdivision 122-A for the transfer of their 50% shareholding in Company A to New Co in exchange for receiving shares in New Co. If the Taxpayer does choose to obtain the roll-over relief, they can disregard the capital gain made on the disposal of those shares in accordance with subsection 122-40(1).

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